Accounting Principles Board Research Articles

Инвестиционный налоговый вычет (кредит): бухгалтерский учет и идентификация отложенных налогов

The article considers the features of investment tax deduction (credit) from the economic and accounting points of view. The research is based on the analysis of the US practice from 1962. The methodological approaches to accounting of investment tax credit developed by the Accounting Principles Board in 1962–1964 are analysed. Two forms of influence of investment tax credit on the financial position of the organisation are distinguished: (1) the tax credit is a supplement to the mechanism of depreciation deductions; (2) its application reduces the tax base of the asset by the amount of the investment tax credit or to zero. It is determined that investment tax credit is a special form of financial subsidy, the economic benefits of which lie in the part of the tax flow, as the state waives the taxes due to it for the sake of stimulating investments. Three approaches of investment tax credit accounting are characterised: (1) contribution to capital; (2) cost reduction; (3) tax reduction. The author’s approach to the recognition of investment tax credits is proposed for two situations: (1) the application of the tax benefit does not affect the tax base of the asset; (2) the tax base of the asset is reduced to zero or by the amount of the investment tax credit. It is determined that the investment tax credit is not a deferred tax; however, the realisation of the investment tax credit may affect the tax base of the asset, resulting in the need for interperiod allocation of tax effects at the initial recognition of the asset. It is concluded that a deferred credit account should be used to record a “liability” to the government until the full benefit of the investment tax credit has been realised by the entity; therefore, the deferred credit account should be amortised as the rights to the tax benefit become fixed. It is also emphasised that the specific nature of the investment tax credit does not allow the deferred credit account to be related to the deferred income account, as the deferred income account follows the principle of matching income and expenses, while the deferred credit account is used to reconcile the tax cash flow with the financial cash flow; therefore, the deferred credit is treated primarily as an accounting liability and not as deferred income.

Three Big 8 Audit Firms Notify the AICPA in 1970 of Their Lack of Confidence in the Accounting Principles Board

ABSTRACTThe aim of this article is to display, for the first time in the literature, the letters written in November 1970 by the senior partners of three of the Big 8 audit firms, notifying the AICPA of their lack of confidence in the Accounting Principles Board (APB). The letters were provoked by the “embarrassing” and much criticized Opinions 16 and 17 on accounting for pooling of interests and intangible assets.JEL Classification: M41.

An empirical analysis of an application of an alternative measurement model on international accounting standard 33, earnings per share

PurposeThe purpose of this paper is to investigate the empirical effects of modifying the calculation of the diluted earnings per share (EPS) number in an international compared to the US accounting setting. The diluted EPS calculation originated in the US Accounting Principles Board Opinion No. 15 (APB 15) and continues in both the US Statement of Financial Accounting Standard No. 128 (SFAS 128), EPS and International Accounting Standard 33 (IAS 33) EPS. Our analysis of the treatment of dilutive warrants and options versus other dilutive convertible securities extends the work of McEnroe and Sullivan (2018), hereafter referred to as McEnroe and Sullivan, 2018 and provides more insight into the impact on the international accounting regulatory environment. Using the McEnroe and Sullivan, 2018 proposed alternative EPS model, we investigate revising the EPS model and analyzing the impact on international data observations.Design/methodology/approachThe authors selected our sample from the Compustat Fundamentals Annual Database – North America Daily file. Although using the Global – Daily file would be ideal, the data the authors need to make the alternative EPS calculations is not available in the Global database. The authors pulled data for the years 2010 through 2016 for both the USA and international companies. The authors eliminated companies based upon the criteria described later in the paper (which is comparable to the data restrictions set in McEnroe and Sullivan, 2018).FindingsThe results are comparable to the results of the US study. The authors find an average increase in diluted EPS to be 4.57 per cent and the median increase to be 2.43 per cent. McEnroe and Sullivan, 2018 found the average increase in diluted EPS to be 5.72 per cent and the median increase to be 3.81 per cent. The authors do not find a significant difference in the overall average percentage increase when looking across all of the years in the data set and comparing the USA to international observations. Overall, the authors further extend the previous conclusion of McEnroe and Sullivan, 2018 that both the USA and international standard setters should consider the alternative diluted EPS model for accounting regulation.Research limitations/implicationsThe study consists of a sample of 262 international firms. An extended study, of all firms subject to International Accounting Reporting Standards (IFRS) might be used by the International Accounting Standards Board and then stratified by country to see if the capital structure of a particular nation’s securities is particularly impacted by the results.Practical implicationsAs McEnroe and Sullivan, 2018, p. 499 state, the Financial Accounting Standards Board (FASB) avers that the price-earnings ratio of an equity is perhaps the most frequently cited business statistic in equity analysis. The authors cite one source Kuepper, (2018), that it is “one of the most popular metrics” on the international level of stocks using IFRS. Given that the denominator, in the price-earnings ratio is the focus of our study, as in the case McEnroe and Sullivan, 2018, the results have implications for the further study and revision of IAS 33.Social implicationsAgain, as in the case of McEnroe and Sullivan, 2018, if currently reported diluted EPS results in lower equity prices than under the proposed model, an effect might be higher debt and equity costs. Since the authors are unaware of any rationale for the current treatment, the authors feel that the current formulation is less than optimal and that the issue of its provisions should be examined.Originality/valueA review of the literature found no other study other than McEnroe and Sullivan, 2018 undertaking the issue.

An empirical analysis of an alternative model of Financial Accounting Standard no. 128

PurposeThis paper aims to investigate the empirical effects of an inconsistency in the calculation of the diluted earnings per share (EPS) number which originated in Accounting Principles Board Opinion No. 15 (APB 15) and continues in Statement of Financial Accounting Standard No. 128 (SFAS 128), EPS. The discrepancy involves the treatment of dilutive warrants and options versus other dilutive convertible securities and is explained in the section of this paper where the authors describe the proposed alternative EPS model. In a sample of 55 publicly traded companies in which they applied their model, it was found that the average increase in diluted EPS to be 5.7 per cent and the median increase to be 3.8 per cent. The authors believe that SFAS 128 should be considered, along with other factors, to be revised to direct that diluted EPS be computed in accordance with their model.Design/methodology/approachThe authors selected a sample of companies from the Compustat Annual Database that had either Convertible Debt or Convertible Stock or both with a year-end between July 1, 2011 and July 1, 2012 which was the most recent data available at the time of the initial study. They then used the model assuming a “repurchase” of common shares as if the “treasury stock method” which applies to options and warrants also applied to these conversions. They then reduced the number of shares initially used to compute diluted EPS by the number of assumed repurchased shares. Using the revised number of shares, the authors recomputed diluted EPS as a percentage of the originally reported diluted EPS.FindingsFor the 55 companies in the sample, the average increase in diluted EPS using the “treasury stock method” was 5.7 per cent. The median increase was 3.8 per cent. The largest increase was 26.6 per cent and the smallest was 0 per cent.Research limitations/implicationsThis is a one-year study of the sampled firms. A multi-year sample is recommended for further research. Also, the sample might be applied to foreign entities under the jurisdiction of IAS 33.Practical implicationsAccording to the Financial Accounting Standards Board (FASB) the price-earnings ratio of an equity is perhaps the most frequently cited statistic in the business of equity investments. As the denominator in the price-earnings ration is the “diluted” EPS figure calculated under generally accepted accounting principles (GAAP) under Statement of Financial Accounting No. 128 (SFAS 128), the results have very significant implications for the recommended study and revision of the diluted EPS statistic.Social implicationsIf the current diluted EPS reported numbers result in lower stock prices than would otherwise be the case under the authors’ model, then it seems likely that these companies with large amounts of debt would have a higher cost of equity capital than would otherwise be the case. The overall result would be a different allocation of equity capital than would be the case if convertible debt and convertible equity were treated the same way as options and warrants. As we are unaware of a rationale for the disparate treatment, it is believed that this a is a misallocation caused by a statement of the Financial Accounting Standards Board (FASB) that seems flawed and recommend that it be considered to be revised.Originality/valueA review of the literature found no other study addressing this issue.

The omnipresent influence of the SEC in the work of the Accounting Principles Board, 1959–1973

During the tenure of the Accounting Principles Board, the Securities and Exchange Commission frequently played an influential role in its deliberations and in its process of establishing accounting principles, as a reminder to the Board of its obligation to serve the investing public. The object of this paper is to document these influences and therefore to explore why the APB seemed to fail in its mission.

An Annotated Bibliography of Published Writings on the U.S. Accounting Principles Board, 1959 – 1973

An Annotated Bibliography of Published Writings on the U.S. Accounting Principles Board, 1959 – 1973

Actuarialism as biopolitical and disciplinary technique

Reporting the costs of pension plans has “challenged the accountant's imagination” (Matthews, 1960) for decades. Recent financial reporting has been under pressure to reveal the more “true” costs of pension plans, even if that means revealing their failing health. As part of this call, the actuarial methodology upon which pension accounting is based has been criticized as being wholly incorrect and responsible for concealing that health. A much understudied profession, actuaries have been implicated in pension accounting from its very beginnings. This study goes back in time to actuarial intervention in industrial pensions in the United States. Drawing upon archival materials from the beginning of the 20th century and ending with the development of Accounting Opinion No. 8: Accounting for the cost of pension plans, published by the Accounting Principles Board in 1966, we develop a genealogy of that profession's connection to pension accounting. We find that the worker was rendered visible and enunciated via actuarial knowledge, and we trace the effects of that enunciation on the relations between the employer and the worker. We also examine the relations between the accounting and actuarial professions, and demonstrate how accounting intervened into actuarial expertise. We find that as a biopolitical technique actuarialism has, in order to predict costs, fit older workers into a system that traces employees' life patterns. In so doing, it only partly “destroyed” the individual subject, while still working as a mechanism that enabled old, and new, forms of individual discipline to exist.

FUNDS STATEMENTS: THE ACCOUNTING PRINCIPLES BOARD WAS TWICE BEHIND THE CURVE

This paper discusses the circumstances in which the Accounting Principles Board (APB) issued Opinions 3 and 19, in 1963 and 1971, respectively, when the Board encouraged and then required companies to publish a statement of source and application of funds, known as the funds statement. In doing so, the Board both times lagged behind company practice and the views of influential organizations, including the New York Stock Exchange and the Securities and Exchange Commission.

On the Implications of Fair Value Based Merger Accounting

Accounting for business combinations appeared formally for the first time in statute books in the United States in 1970 when Accounting Principles Board (APB) promulgated Opinion No. 16 (Business Combinations) and Opinion No. 17 (Intangible Assets). The US Financial Accounting Standards Board (FASB hereinafter) subsequently issued SFAS 141(R) and SFAS 160. This paper attempts to analyze merger accounting in the context of the aforesaid standards and related provisions as they stand en presnti underscoring the role therein of fair value accounting and measurements. Additionally, a critical evaluation of the pooling & purchase methods of merger accounting is presented in an effort to explain the relative aversion of accounting bodies to the pooling method. Contextual SFAS, IFRS and Indian standards on business combinations that mandate the use of the acquisition method are also elaborated.

The Wheat Study on Establishment of Accounting Principles (1971–72): A historical study

The 1972 report of the Wheat Study on Establishment of Accounting Principles became the blueprint for the Financial Accounting Standards Board (FASB), which began its official operations on July 1, 1973, succeeding the Accounting Principles Board. The FASB was the world’s first independent, full-time standard-setting board which was not organized within the accounting profession. This paper is an attempt to understand the crisis in standard setting that led up to the appointment of the Wheat Study, as well as the main elements in the Study’s process of examining the milieu of the APB, securing views from a wide range of interested parties, and fashioning its report, including the roles played by the different members of the study group.

KONVERGENCE IFRS A US GAAP V OBLASTI PODNIKOVÝCH KOMBINACÍ

The IASB project "Business Combinations" started in 2001. The increase of financial statements quality and international harmonization of business combinations recording were main objectives of this project. The project was divided into two phases. IFRS 3 (2004) Business Combinations" which replaced former IAS 22 was the result of the first phase. Partial harmonization of recording and financial reporting of business combination in Europe and in the USA was the main objective of IFRS 3 (2004). IFRS 3 (2004) is based on SFAS 141 (2001). SFAS 141 (2001) was developed in 2001 and replaced APB (Accounting Principles Board) Opinion No. 16 Business Combinations and SFAS 38. There is the pooling interest method forbidden and only the purchase method is allowed for all kinds of business combinations. Based on the comparison of both methodical approaches to business combinations are demonstrated reasons for refusing of pooling interest method. The second phase is aimed at purchase method application and new methodical approaches to business combination recording and it is the objective of the conclusion of this paper.

The Wheat Study on Establishment of Accounting Principles (1971-72): A Historical Study

The 1972 report of the Wheat Study on Establishment of Accounting Principles became the blueprint for the Financial Accounting Standards Board (FASB), which began its official operations on July 1, 1973, succeeding the Accounting Principles Board. The FASB was the world’s first independent, full-time standard-setting board which was not organized within the accounting profession. This paper is an attempt to understand the crisis in standard setting that led up to the appointment of the Wheat Study, as well as the main elements in the Study’s process of examining the milieu of the APB, securing views from a wide range of interested parties, and fashioning its report, including the roles played by the different members of the study group.

Charles T. Horngren: Mentor, Role Model, Colleague, and Friend

This expresses the feeling of inadequacy of doing justice to the life and career of Charles Thomas Horngren. Chuck, the son of William and Grace Horngren, was born on October 28, 1926, in Milwaukee, Wisconsin. His father worked for over 40 years as a railway mail clerk on the Milwaukee Road. His father was an avid baseball fan, a passion he passed on to his son. Chuck often reminisced about his dad taking him to the baseball games and meeting many of the day’s baseball luminaries. He also had a collection of baseball memorabilia, including Yogi Berra’s autograph in his book, Yogi: It Ain’t Over. . . , co-written by Chuck’s close friend, Tom Horton. Chuck graduated from Washington High School in 1944 and joined the Army. The Army sent him to pre-engineering classes at Ripon College and to engineering classes at what is today known as Texas A&M University. After over two years in the Army, Chuck enrolled at Marquette University and was elected to Beta Alpha Psi. While at Marquette he gained an appreciation for teaching after tutoring basketball players and disabled veterans. He graduated from Marquette as valedictorian in 1949 and remained very loyal to Marquette throughout his life. Upon graduation, he joined Peat, Marwick, Mitchell & Co. (now part of KPMG) as a staff auditor. A year later, he taught full time at Spencerian College, a commercial business college,

EPS Reporting Revisited: An Evaluation Of Proposed Changes

In 1969 the Accounting Principles Board issued Opinion No. 15, Earnings Per Share, requiring firms with complex capital structures to disclose primary and fully diluted earnings per share. A recent article by Mautz and Hog the treasury stock method used in the computation of primary and fully-diluted earnings, and the three percent materiality standard. The purpose of this paper is to evaluate these proposed changes by examining empirical evidence from studies investigating conversion predictability and the information content of earnings.

New Accounting Guidance For Business Combinations

The Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 141 Business Combinations in June 2001. SFAS 141 supersedes Accounting Principles Board (APB) Opinion No. 16 Business Combinations and SFAS No. 38 Accounting for Preacquisition Contingencies of Purchased Enterprises. APB Opinion 16 created two acceptable methods of accounting for a business combination, the purchase and the pooling of interests methods. These two different methods often resulted in very different financial results for economically similar transactions.

The Value-Relevance Of The Cumulative Effect Reporting Method: Some Evidence In Support Of FAS 154

The Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 154 (FAS 154), Accounting Changes and Error Corrections replacement of APB Opinion No. 20 and FASB Statement No. 3 (FASB 2005). The retrospective application reporting method of FAS 154 is a significant departure from the cumulative effect method of its predecessor standard, Accounting Principles Board Opinion No. 20 (APB No. 20) (AICPA 1971). This study examines the value relevance of the cumulative effect reporting method used a priori FAS 154. The results indicate that for most years the cumulative effect was not a significant variable in explaining the market value of a firm and there was inconsistency in the sign and size of the coefficient. Accordingly, these results suggest that FAS 154, aside from its other merits, eliminated from financial statements accounting information that was not relevant, thus providing support for the issuance of FAS 154.

History repeats itself: The acquisition method and nonrecurring charges

The Financial Accounting Standards Board issued Statement No. 141 (R) that replaces Statement of Financial Accounting Standard No. 141, Business Combinations. The new standard mandates use of the acquisition method, which requires expense treatment for acquisition-related transaction costs. Expense treatment is a departure from purchase accounting procedures, but is consistent with past guidance of Accounting Principles Board Opinion No. 16 for the pooling-of-interests method. Restoration of historical and controversial accounting procedures resurrects past outcomes. This study utilizes econometric techniques to predict outcomes of the acquisition method. Evidence indicates that expensing acquisition-related costs may improve transparent reporting. The results, based on 638 business combinations from 1994 through 1998, support the expectation that expense treatment for acquisition-related costs increases the likelihood that these costs appear more frequently and are greater in magnitude.

Corporate Governance, the Timeliness of Financial Reporting and the Russian Banking System: An Empirical Study

Transparency is one of those terms that have many facets. It is used in different ways. It can refer to the openness of governmental functions. It can refer to a country's economy. Or it can refer to various aspects of corporate governance and financial reporting. The OECD (1998) lists transparency as one element of good corporate governance. Kulzick (2004) and others (Blanchet, 2002; Prickett, 2002) view transparency from a user perspective. According to their view, transparency includes the following eight concepts: accuracy, consistency, appropriateness, completeness, clarity, timeliness, convenience, and governance and enforcement. This paper focuses on just one aspect of transparency - timeliness. The International Accounting Standards Board considers timeliness to be an essential aspect of financial reporting. In APB Statement No. 4, the Accounting Principles Board (1970) in the USA listed timeliness as one of the qualitative objectives of financial reporting disclosure. APB Statement No. 4 was later superseded but the Financial Accounting Standards Board continued to recognize the importance of timeliness in its Concepts Statement No. 2 (1980). The U.S. Securities and Exchange Commission also recognizes the importance of timeliness and requires that listed companies file their annual 10-K reports by a certain deadline. The issue of timeliness has several facets. There is an inverse relationship between the quality of financial information and the timeliness with which it is reported (Kenley & Staubus, 1974). Accounting information becomes less relevant with the passage of time (Atiase, Bamber & Tse, 1989; Hendriksen & van Breeda, 1992; Lawrence & Glover, 1998).

THE SEC PREEMPTS THE ACCOUNTING PRINCIPLES BOARD IN 1965: THE CLASSIFICATION OF THE DEFERRED TAX CREDIT RELATING TO INSTALLMENT SALES

In 1959, the Accounting Principles Board (APB) replaced the Committee on Accounting Procedure because the latter was unable to deal forthrightly with a series of important issues. But during the APB's first half-dozen years, its record of achievement was no more impressive than its predecessor's. The chairman of the Securities and Exchange Commission (SEC), Manuel F. Cohen, criticized the APB's slow pace and unwillingness to tackle difficult issues. This article discusses the circumstances attending the SEC's issuance of an Accounting Series Release in late 1965 to demonstrate forcefully to the APB that, when it is unable to carry out its responsibility to “narrow the areas of difference” in accounting practice, the SEC is prepared to step in and do so itself. In this sense, the article deals with the tensions between the private and public sectors in the establishment of accounting principles in the U.S. during the mid-1960s. The article makes extensive use of primary resource materials in the author's personal archive, which have not been used previously in published work.

Models to measure goodwill impairment

Statement of Accounting Standards No. 142 [2001] superseded the former rules of accounting for amortization of goodwill under Accounting Principles Board Opinion No. 17 [1970]. Entities muxt now recognize annually impairments in the value of the good-will associated with purchased firms, rather than amortizing such expenses ratably over 40 years. This better matching of revenues and expenses provides for more valid financial statements, but also mandates accountants to select proper models to measure such impairment losses. The authors highlight some reasons for the issuance of this new standard, compare and contrast the effects of the discounted cash flows and residual income methods to measure such impairments, and suggest how to develop a conceptual model to adhere to the new authoritative provisions. (JEL M41)