US GAAP Research Articles

Should Codification Emerge in IFRS? Does Form of Regulation Matter?

The International Financial Reporting Standards (IFRS) is in the process of becoming globally recognised in stock exchanges alongside the Generally Accepted Accounting Principles in the United States (US GAAP). The IFRS and US GAAP have evolved based on the GAAP encompassed by the list of standards that constitute the structure of both accounting literatures. The structure that this article refers to as has been a traditional format for the IFRS and US GAAP in the past. Whereas the IFRS still maintains a standard-based literature structure, US GAAP standard setters of the Financial Accounting Standards Board (FASB) decided to depart from the standard-based tradition of editing accounting literature by redesigning the existing authoritative US GAAP literature into a single codified text, titled the Accounting Standards Codification (ASC). This paper focused on the structures of IFRS and US GAAP to understand whether the ASC enhances the application of US GAAP by professionals. The objective of this paper was to determine whether the structure of the ASC offers an appropriate alternative to the standard-based structure of IFRS - making IFRS a user- friendly accounting literature in Central Europe. We administered a survey as a tool to foster discussion and to identify the features offered by the ASC, which is similar in structure to statutory accounting traditionally adopted in Central Europe.

Long-Lived Asset Impairments in the Shipping Industry and the Impact on Financial Statement Ratios: Comparing U.S. GAAP and IFRS Standards

In this paper, we investigate asset impairment standards particularly as they relate to differences between United States generally accepted accounting principles (US GAAP) and international financial reporting standards (IFRS) for the impairment of long-lived assets in the shipping industry and the corresponding impact on financial statement analysis ratios. Our study provides evidence that return on assets and asset turnover ratios diverge significantly as a result of the difference between US GAAP and IFRS on asset impairments within the shipping industry. Reporting differences between US GAAP and IFRS can impede the comparability of financial reporting. Asset impairment accounting differences can have significant differences for companies reporting under these two accounting standards.

Critical reflection on XBRL: A “customisable standard” for financial reporting?

In this paper, we discuss the dual power of XBRL to standardise and/or accommodate firms’ financial reporting practices. We first develop a conceptual framework for understanding which factors may affect the adoption of XBRL and, in turn, standardise or customise financial reporting. We then examine the XBRL implementation models adopted in two countries: Italy and the US. In Italy, XBRL is required through the application of a standard taxonomy (the Italian GAAP Taxonomy), without the ability to create and submit taxonomy extensions. Conversely, in the US, XBRL is required through the application of a standard taxonomy (the US GAAP Taxonomy), along with the ability to define individual extensions to be submitted to the SEC. We discuss the potential effects of taxonomy application on the representation of financial information. The application of a taxonomy on a “blind basis” (extensions not permitted) leads not only to the full comparability of financial data but also to a loss of idiosyncratic information. The application of a taxonomy on a “minimum basis” (individual extensions permitted) preserves specific information, but causes a potential loss of data comparability.

Disaggregating operating and financial activities: implications for forecasts of profitability

Researchers, practitioners, and standard setters emphasize the importance of disaggregating financial statements into operating and financial activities. However, there is a lack of research demonstrating that this disaggregation improves forecasts of profitability. In this study, we consider whether and when the operating/financial disaggregation improves forecasts of profitability. Contrary to the use of an aggregate forecasting approach by most related prior research, we first show that the operating/financial disaggregation only provides forecast improvement over a benchmark model incorporating aggregate information when the components forecasting approach is used. We also compare the operating/financial disaggregation to the unusual/infrequent disaggregation required by US GAAP. We find that the operating/financial disaggregation yields less accurate forecasts than the unusual/infrequent disaggregation. However, when using the components forecasting approach, we find that the combination of both disaggregations improves forecasts of profitability. Finally, we document that the incremental usefulness of the operating/financial disaggregation relative to a benchmark model incorporating aggregate information is a function of growth and accounting conservatism. Overall, our study provides timely evidence concerning how analysts and investors might best use the operating/financial disaggregation for forecasting profitability.

Cost of equity capital of foreign firms

Purpose – The purpose of this paper is to examine the cost of equity capital for foreign firms listed in the US stock exchanges during 2004‐2009, a period that the Securities and Exchange Commission (SEC) shifted from requiring foreign issuers to comply with the US GAAP reconciliations to permitting the choice of IFRS in financial reporting.Design/methodology/approach – The cost of equity of foreign firms in the IFRS reporting period was compared to that in the US GAAP reconciliation period. Also, the cost of equity of foreign firms was compared to that of matched US firms during the two periods.Findings – The results show that the cost of equity in foreign firms is higher during the IFRS reporting period (2007‐2009) than the US GAAP reconciliation period (2004‐2006); foreign firms exhibit a constantly higher cost of equity than that of matched US firms in both periods; and the size of cost of equity difference remains the same with respect to the regulatory change. Further, it is shown that the change in...

Not-for-profit accounting in a changing world of standard setting: What professors and students need to know

• Reviews the history of nonprofit standard setting in the US. • Discusses the influence of standards for private and small entities on nonprofits. • Explores potential exceptions and modifications to US GAAP for nonprofits. • Examines current and future directions of FASB’s Not-for-Profit Advisory Committee. Generally, accounting standard setting in the 21st Century promises to be an interesting and increasingly diverse endeavor. This paper discusses the formation of the FASB’s Not-for-Profit Advisory Committee in 2010 and its work to date. I identify the various changes that will likely impact accounting and auditing for not-for-profit entities. Specifically, prospects for changes to current not-for-profit standards are discussed with emphasis on how future changes might follow the patterns outlined for private companies or small and medium-sized entities. New possibilities and implications for educators and curriculum design are introduced.

Institutional Investors’ Reaction to SEC Concerns about IFRS and US GAAP Reporting

AbstractFor the period of 2006 to 2008, we collect Comment Letters issued by the SEC that question the application of US GAAP by US firms or the application of IFRS by European firms registered with the SEC. We investigate whether institutional investors react to the letters by changing their holdings and whether their responses vary for US registrants and European registrants. We do this via a treatment‐effects model in which we test the hypothesis that institutional investors rebalance their portfolio holdings because they view Comment Letters as informative public signals. We find that institutional investors reduce their equity holdings when firms receive SEC Comment Letters, and their negative reactions are most marked for low turnover institutional investors, who we use to represent those informed investors most prepared to incur costs to closely monitor firms. Next, while noting that the number of Letters questioning application of IFRS are smaller in number relative to those questioning application of US GAAP, we investigate whether there are different reactions to Comment Letters questioning different standards. We show that there is a higher probability of the SEC questioning the application of IFRS as compared to US GAAP. After controlling for firm‐specific conditions that impact the issuance of a Comment Letter, we show that this higher probability has economic significance because institutional investors’ react more negatively to Comment Letters that question the application of IFRS as compared to US GAAP. A content analysis confirms the economic importance of the Comment Letters. We find that in almost half of all IFRS cases the Comment Letters request amendments to financial statements.

Convergence of IFRS and US GAAP in the field of lease: the impact of new methodological approaches for operating lease reporting

Since 2002 the International Accounting Standards Board (IASB) and the Financial Accounting Standards Board (FASB) has begun significantly cooperate in the creation of standards based on the same principals. This is a process of convergence. It is realized through a series of sub-projects aimed at short-term or long-term period. Revenue recognition and lease reporting projects represent priority areas of convergence. The issue of leases belongs to one of the areas in which there have been, after a relatively long time, criticized the very principles applied in international accounting standards. The result of the convergence activities should be the creation of such methodological approaches of reporting the lease contracts on the side of lessee and then lessor that would eliminate the main weaknesses of the current system of reporting based on the classification of lease contracts in connection with the execution or non execution of the transfer of risks and benefits associated with the lease to the lessee. The aim of this paper is to evaluate the impact of implementation of the newly proposed methodological approach for lease reporting in the field of operating leases into the financial statements that will be affected by this change of methodology (balance sheet, income statement). Subsequently, it is evaluated also the impact into selected indicators of financial analysis with a focus on indicators, in whose construction are used items of statements that are significantly affected by the change of the methodological approach.

Perceptions of professionals interested in accounting and auditing about acceptance and adaptation of global financial reporting standards

Nowadays, one of the final aims of the institutions working on transparency and standardization of financial statements, and the publication of standards related to the profession of accounting & auditing has been to put into practice a uniform global set of standards which will be applicable in finance. Before 2000, in the case of a preference between IFRS & US GAAP regarding which should be internationally accepted uniform set of application, world public opinion used to accept U.S. Generally Accepted Accounting Principles (US GAAP) as reference. Today, great majority of the world takes IFRS as a reference. This study contains evaluations related to the results of research on the thoughts & perceptions of the professionals interested in accounting and auditing about application and development of international financial reporting standards as national financial reporting standards. As a result of the research, it was determined that those interested in accounting and auditing see significant advantages in the application of IFRS. Accountants and auditors think that in case IFRS is applied, comprehensibility and reliability of financial statements shall increase, at the same time accounting frauds shall decrease.

A Comprehensive Case Study: US GAAP Conversion to IFRS

The world has become increasingly interrelated in past three decades. Technology and internet have dramatically facilitated communications, there is increased foreign investment, global trade barriers have been minimized and there is increasing outsourcing of work. As Thomas Friedman says the playing field is flattening. In order to service clients and subsidiaries in all parts of world, CPAs need to know how to deal effectively with those from other cultures. They may even be resident in different countries. According to 2010 census, 13% of US population is foreign born. Understanding how cultures differ can enable us to interact more effectively with those from other cultural backgrounds. This article will focus on several areas of cultural differences. The intent is to make reader more aware of these differences and to heighten cultural awareness and sensitivity.

IFRS And US GAAP Convergence Progressing: As Taxpayers Voluntarily Stop Using LIFO

This paper presents the potential benefits of the last in, first out (LIFO) inventory valuation method being eliminated as a requirement in financial statements prepared under United States Generally Accepted Accounting Principles when also used for United Stated federal income tax reporting. Research results show that corporations have been voluntarily switching from LIFO to another method since inflation declined well below double digits. Of the corporations still using LIFO, the potential billions of federal tax revenue is presented that might help keep the United States federal budget from going over the fiscal cliff.

A Comprehensive Case Study: US GAAP Conversion to IFRS

International Reporting Standards (IFRS) has become the required framework for most of the world financial markets effective on January 1, 2011. The United States is in a transformation stage, and it has not yet been determined when the US will adopt IFRS. The introduction of IFRS accounting rules into the curriculum is valuable because it presents an alternative method of accounting which can be used to heighten students understanding of GAAP. At present, the CPA Uniform CPA exam is testing IFRS and its testing content is increasing with each current test. Additionally, the CFA exam tests IFRS exclusively and has eliminated US GAAP from its curriculum, basing its action on the fact that the CFA examination is a global based exam. This case requires students to critically read authoritative accounting literature and apply their understanding in preparing IFRS statements by preparing an IFRS based statements from a US GAAP prepared income statement and balance sheet. This case study can be used at the undergraduate or graduate level. It is most suitable for Intermediate Accounting 2, Accounting Theory, International Accounting, Financial Statement Analysis, or an Accounting Capstone classes. Students must have or develop a solid understanding of both US GAAP and IFRS rules is required to adequately address this comprehensive case study.

Privatized Returns and Socialized Risks: CEO Incentives, Securitization Accounting and the Financial Crisis

The paper investigates the role of CEO’s equity and risk incentives in boosting securitization in the financial industry and in motivating executives to reduce the perceived risk while betting on it. Using a sample of US financial institutions over the period 2003-2009 we document that CEOs with high equity incentives have systematically engaged in securitization transactions to a larger extent than CEOs with low incentives. We also show that CEOs with high equity and risk-related incentives have engaged in the securitization of risky loans and have used securitization for transferring risks to outside investors. Finally, we show that executives incentivized on risk have provided outside investors with low quality disclosure about losses recorded on securitized loans thus contributing to increase the opacity of securitization transactions undertaken. Overall, we interpret our results as evidence that CEOs have foreseen in securitizations under US GAAP an opportunity for hiding risks while bearing them and generating profits and cash flows because of the risks. Our results are robust to several model specifications as well as to endogeneity concerns.

The impact of fair‐value‐accounting on the relevance of capital adequacy ratios

PurposeThis study aims to empirically investigate whether the adoption of fair‐value‐accounting decreases the relevance of banks' capital adequacy ratios (CARs) in explaining insolvency risks. Additionally, how the disclosure quality affects the superiority of fair‐value‐based CARs over cost‐based CARs is also explored.Design/methodology/approachUsing data from Taiwan banks from 2004 to 2010, the following tests are conducted. First, the insolvency risk is regressed on the reported CAR, along with the related interaction with the adoption of TFAS No. 34 to test the weakened relevance of CARs during the post‐TFAS No. 34 periods. Second, the relative relevance of fair‐value‐based CARs and cost‐based CARs is assessed using Vuong's Z‐statistic. Lastly, observations are partitioned into two groups – banks of higher and lower disclosure quality – to investigate whether fair‐value‐based CARs is superior (inferior) to cost‐based CARs for banks with higher (lower) disclosure quality.FindingsFirst, adopting TFAS No. 34 reduces the relevance of CARs in explaining banks' insolvency risks. Second, fair‐value‐based CARs are superior to cost‐based ones in relation to insolvency risks only for banks of higher disclosure quality.Originality/valueThis study is the first to fill the empirical gap by demonstrating that the ability of CARs to explain the insolvency risk is adversely influenced by the adoption of fair value accounting. In particular, the results shed some light on the move toward fair‐value accounting, and may be interpreted that adopting fair‐value reporting is not flawless, drawing attention to the potential information loss in abandoning historical‐cost‐based regimes. Moreover, because the application of fair‐value accounting in the Taiwan banking industry is fairly similar to that of international or US GAAP, these results also yield insights into other standard‐setters.

Difficulties of applying IFRS in continental Europe from the perspective of codification

The implementation of the Accounting Standards Codification (hereinafter: „Codification”) in July 2009 resulted in significant changes to the structure of the US GAAP. The Codification collects all existing US GAAPs in a single codified structure, being conceptually different from previous standard-based accounting structures typical to the IFRS, and to accounting structures applied in the UK and Canada. The paper presents the structure of the Codification and compares it to the traditional continental statutory accounting systems. The results show that the continental accounting systems are similar to the Codification in structure and highlight a possible reason why these countries have difficulties in implementation of the standard-based IFRS regulations. I demonstrate in the paper the links difficult to traverse, resulting from the currently diversified standard-based structure of the IFRS. This novel approach underlines this fact and supports it by a SWOT analysis on the possibility of codification of IFRS. Considering the merits and demerits of the analysis, the introduction of a codification approach similar to the Codification is proposed.

Convergence of IFRS and US GAAP – New Model

Convergence of IFRS and US GAAP – New Model

Temporary book-tax differences under IFRS

his research seeks to determine whether the general and specific categories of deferred tax assets (DTAs) and deferred tax liabilities (DTLs) under International Financial Reporting Standards are related to changes in stock prices. The results seem to indicate that DTAs and DTLs under IFRS could be less helpful to investors than they currently are under US GAAP.

IFRS in the Accounting Curriculum - Implications from Different Perspectives

The switch from United States Generally Accepted Accounting Principles to IFRS is an extremely large undertaking which will have far reaching effects. Many studies have focused on the effect of possible adoption of IFRS from the perspectives of companies, accountants, or other business stakeholders. This paper attempts to obtain feedback regarding possible IFRS adoption from different angles, particularly from student perspective. Specifically, this paper surveys student comfort level on IFRS new standards as well as their opinions on how well the current curriculum teaches IFRS. Key words: International Financial Reporting Standards (IFRS); US GAAP; accounting curriculum

Financial reporting comparability: toward an XBRL ontology of the FASB/IFRS conceptual framework

As a mechanism for the exchange, transmission, and reporting of accounting and financial data, eXtensible Business Reporting Language XBRL makes great strides toward standardisation. However, given the global nature of contemporary financial markets, XBRL reporting must transcend or accommodate differences in reporting standards. Presently, the two standards for XBRL reporting, the US Generally Accepted Accounting Principles US GAAP or International Financial Reporting Standards IFRS, make reconciling meanings between these standards a laborious and error-prone affair. As the audience for this reporting often spans countries and cultures, many have a stake in digesting XBRL-formatted financial reports. This paper addresses the question of how cross-cultural and transnational consumers of XBRL statements can derive meaning from these reports. We present an ontological approach toward solving this problem which includes a financial reporting ontology and associated architecture for comparing concepts across XBRL taxonomies. The architecture is explained, evaluation criteria offered, and future research approaches toward realising artefacts using this architecture are proffered.

US GAAP x Contabilidade na América Latina: Impacto das diferenças de normas no lucro reportado das empresas com ADRs na NYSE

The goal of this study is to measure how many differences between accounting norms of the United States and of Latin American countries impact the profit reported by firms of these latter countries. The Gray’s “Conservatism Index”, which measures the degree to which a national accounting system – in this work, Argentina, Brazil, Chile and Mexico – reports lower (“conservative”) or higher (“optimist”) profits than the US GAAP, was calculated. The study encompasses all firms of these countries with ADRs in the NYSE in the period 2001-2005, and is based on published data of SEC’s 20F Forms and on the Economatica’s databank. Mean and median measurements indicate that, in general, the accounting practices of Latin American countries result in profit values that are lower than those reported as per US GAAP. However, mean tests and the frequency distribution show that there is no representative homogeneous pattern, except for Chile, with a mean IC significant at 10% in the sub-periods 2001-2002 and 2003-2005, and for Brazil only in the last studied triennium. Key words: International Accounting, US GAAP, Latin American Accounting Norms, Conservatism Index.