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Book part
Publication date: 28 May 2019

Martin Freedman and Jin Dong Park

The United States Securities and Exchange Commission (SEC) issued an interpretative release ostensibly mandating the disclosure of the impact that climate change may have…

Abstract

The United States Securities and Exchange Commission (SEC) issued an interpretative release ostensibly mandating the disclosure of the impact that climate change may have on the registrant. One means of enforcement for this release is through the use of comment letters. Prior empirical studies have supported the argument that the SEC oversight through issuing comment letters is effective in enhancing the quality of firms’ disclosures (Asthana & Boone, 2009; Johnston & Petacchi, 2017). With a total of 27 comment letter cases (34 comments based on the topics) regarding climate change disclosure, we do not find clear evidence strongly supporting that the SEC implements its oversight process through systematic procedures and that SEC comment letters enhance the quality of firms’ climate change disclosure. Although some firms responded to the comments proactively, qualitative analysis reveals that the firm’s revisions were not sufficient to provide useful information for market participants in general. The overall finding suggests that the current oversight mechanism for climate change disclosure needs to be significantly improved to enhance the quality of firms’ climate change disclosure.

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Article
Publication date: 6 August 2020

Amy K. Lysak

This study aims to evaluate whether the Big-4’s commenting efforts influence the characteristics of Financial Accounting Standards Board’s (FASB’s) Final_Standards using…

Abstract

Purpose

This study aims to evaluate whether the Big-4’s commenting efforts influence the characteristics of Financial Accounting Standards Board’s (FASB’s) Final_Standards using the content of their comment letters. Whether auditors lobby standard-setters to help their clients or to help themselves and whether they are successful are questions highly relevant to issues of auditor independence and audit effectiveness.

Design/methodology/approach

Based on components of Mergenthaler (2009), this study develops a rules-based continuum change score to measure how much more (less) rules-based a Final_Standard is compared to its exposure draft to evaluate the influence of the Big-4 on the FASB’s standard-setting for 63 accounting standards.

Findings

The findings show that extensive comment letters and increased uncertainty language are associated with increases in the rules-based attributes included in Final_Standards. These results suggest the Big-4 prioritize a reduction in their own litigation risk over the possible preferences of their clients for less rigid standards. Moreover, the results are consistent with their comment letters influencing the FASB’s decision to include more rules-based attributes in Final_Standards.

Originality/value

This study develops a potential proxy for audit risk by assessing the changes in the rules-based characteristics of proposed accounting standards and using the content of the comment letters to evaluate whether the Big-4 accounting firms may influence the FASB’s Final_Standards. Overall, this study provides a unique perspective on the influence of constituents on the FASB’s standard-setting.

Details

Journal of Financial Reporting and Accounting, vol. 18 no. 4
Type: Research Article
ISSN: 1985-2517

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Article
Publication date: 6 May 2020

Renee Flasher, Michelle Lau and Dara M. Marshall

The US federal government requires auditors to follow governmental auditing standards when performing audits of entities expending significant federal government dollars…

Abstract

Purpose

The US federal government requires auditors to follow governmental auditing standards when performing audits of entities expending significant federal government dollars. This study explores stakeholder participation during the comment letter phase of government auditing standard setting to determine if participation is symbolic or substantive.

Design/methodology/approach

Researchers conduct an analysis of the 179 comment letters submitted to the US Government Accountability Office (GAO) and received for their 2010 and 2017 exposure drafts of government auditing standards.

Findings

The distribution of stakeholder participation groups in the government auditing standard-setting process differs from the distribution in the private company auditing standard-setting process. On average, participants submit letters that are greater than two pages in length. Participants also contribute feedback on topics that the GAO directly solicits. Taken together, the results demonstrate stakeholder behaviors that are consistent with a substantive rather than symbolic due process involvement for government auditing standards.

Research limitations/implications

Stakeholder beliefs are inferred based on the observed behavior of comment letter submissions. Also, there is a subjective element to the classification of the comment letters for the study.

Practical Implications

Given the far-reaching implications of Yellow Book auditing standards on public, private and nonprofit entities, the findings are relevant to a heterogeneous audience. This study reveals opportunities for users of government auditing standards, practitioners and academics for greater involvement in due process standard setting to bring additional legitimacy to the GAO and its standard-setting activities.

Originality/value

Beyond the current study, little empirical research examines Yellow Book auditing standards or the due process through which these standards are established. This is the first study to examine the complete set of comment letters for the 2010 and 2017 exposure drafts of government auditing standards.

Details

Journal of Public Budgeting, Accounting & Financial Management, vol. 32 no. 2
Type: Research Article
ISSN: 1096-3367

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Article
Publication date: 3 July 2017

Cheryl L. Linthicum, Andrew J. McLelland and Michael A. Schuldt

This study investigates the influence of the Securities and Exchange Commission (SEC) on the interpretation and application of International Financial Reporting Standards…

Abstract

Purpose

This study investigates the influence of the Securities and Exchange Commission (SEC) on the interpretation and application of International Financial Reporting Standards (IFRS) by examining a group of SEC-selected foreign private issuers filing 2005 annual reports in the USA and reporting using IFRS for the first time.

Design/methodology/approach

This paper uses hand-collected information from SEC comment letters to analyze IFRS topics and documents the ultimate resolution of each SEC comment (no change to filing, current change to filing or prospective change to future filing). The authors use descriptive statistical analyses, as well as a logistic regression model involving the resolution of each SEC comment, to examine the SEC’s influence on the interpretation of IFRS.

Findings

The study finds both higher comment totals, and higher numbers of required filing modifications, for those IFRS pronouncements which were identified as needing improvement during the 2006-2008 convergence efforts by the International Accounting Standards Board (IASB) and the US Financial Accounting Standards Board (FASB). Additionally, the study documents a decreasing likelihood of a filing modification when US generally accepted accounting principles (US GAAP) guidance is referenced in comment letter correspondence involving IFRS topics.

Originality/value

The study extends the IFRS literature and the SEC comment letter literature by focusing on the resolution of comments directed at IFRS disclosures, as well as exploring the factors which influence whether a comment ultimately requires a filing modification.

Details

Journal of Financial Reporting and Accounting, vol. 15 no. 2
Type: Research Article
ISSN: 1985-2517

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Article
Publication date: 2 November 2010

Kristina Jonäll and Gunnar Rimmel

The purpose of this paper is to describe and interpret the CEO letter in the annual reports of three multinational Swedish companies. This study focuses on the CEOs'…

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1142

Abstract

Purpose

The purpose of this paper is to describe and interpret the CEO letter in the annual reports of three multinational Swedish companies. This study focuses on the CEOs' comments on accounting principles and rules, on company decisions and actions, and on external events. Examination of CEO letters reveals how CEOs make themselves accountable to readers and establish their own and their companies' legitimacy.

Design/methodology/approach

A strategic design was used to select the three companies;.the three criteria used in making the selection were company nationality, age, and stock market listing. A fourth criterion was that the company had been a nominee in the Stockholm Stock Exchange “Best Annual Report” contest. Based on a social constructivist approach, with inspiration from the field of discourse psychology, a discursive action model (DAM) is applied in this research.

Findings

The analysis shows that the CEO letters at two of the three companies do not emphasize numbers and text. In the third company's CEO letters, the numbers are an important component and are balanced with text. It was found that one explanation of the CEO letter format is the CEO's wish to persuade readers of the company's legitimacy, excellence, and future survival. The CEO letter is intended to strengthen readers' confidence in the company.

Originality/value

This paper provides insight into how CEOs use CEO letters in annual reports to craft a corporate image for readers.

Details

Journal of Human Resource Costing & Accounting, vol. 14 no. 4
Type: Research Article
ISSN: 1401-338X

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Article
Publication date: 26 February 2020

Corinne Cortese and Jane Andrew

Multinational resource companies (MRCs) are under pressure to become responsible corporate citizens. In particular, stakeholders are demanding more information about the…

Abstract

Purpose

Multinational resource companies (MRCs) are under pressure to become responsible corporate citizens. In particular, stakeholders are demanding more information about the deals these companies negotiate with the host governments of resource-rich nations, and there is general agreement about the need for industry commitment to transparency and the benefits that a mandatory disclosure regime would bring. This paper examines the production of one attempt to regulate disclosures related to payments between MRCs and the governments of nations with resource wealth: Section 1504 of the Dodd–Frank Act.

Design/methodology/approach

Drawing on Boltanski and Thévenot's (2006) Sociology of Worth, the authors examine the comment letters of participants in this process with a view to revealing how stakeholder groups produce justifications to promote their positions vis-à-vis transparency to regulators.

Findings

The authors show how justifications were mobilised by various constituents in an effort to shape the definition of transparency and the regulatory architecture that governs disclosure practices. In this case, the collective recognition of desirability of transparency enabled the SEC to suture together the views of constituents to create a shared understanding of the role of the common good as it relates to transparency.

Originality/value

This paper explores an alternative approach to the consideration of comment letters advanced during the process of disclosure-related rule-making. The authors show how a sophisticated regulator may be able to draw together elements stemming from different constituents in a way that appeals to a shared sense of the “common good” in order to produce Final Rules.

Details

Accounting, Auditing & Accountability Journal, vol. 33 no. 2
Type: Research Article
ISSN: 0951-3574

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Book part
Publication date: 19 May 2010

Brian Patrick Green, Alan Reinstein and Cathleen L. Miller

Standards for Accounting and Review Services (SSARS) Number (No.) 1, “Compilations and Review Services” (AICPA, 1979), provides guidance for public accountants associated…

Abstract

Standards for Accounting and Review Services (SSARS) Number (No.) 1, “Compilations and Review Services” (AICPA, 1979), provides guidance for public accountants associated with unaudited financial statements through compilations and reviews. SSARS No. 8, “Amendment to SSARS No. 1, Compilation and Review of Financial Statements” (2000), extends this guidance to plain paper statements. Unlike traditional compilations, plain paper statements are intended only for the use of informed members of management.

To examine the effects of SSARS No. 8, we surveyed practicing Certified Public Accountants (CPAs) and bank loan officers to measure their perceptions of what constitute “submitted financial statements,” “third parties,” “informed members of management,” and other key terms that aroused concerns described in SSARS No. 8 comment letters. We find that several years after the issuance of SSARS No. 8, CPAs, even those somewhat familiar with SSARS No. 8, and bankers who have experience with plain paper statements do not fully understand the definitions and applications of SSARS No. 8. In addition, several of the concerns cited in the statement's Exposure Draft (ED) comment letters linger. The results suggest the need to either better education plain paper statement users or revise the standards, perhaps prohibiting a CPA's association with plain paper statements. We also identify future research questions.

Details

Ethics, Equity, and Regulation
Type: Book
ISBN: 978-1-84950-729-5

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Article
Publication date: 14 September 2010

Sandra Chapple, Lee Moerman and Kathy Rudkin

The purpose of this paper is to present the views and challenges from a range of accounting professionals, regulators and preparers with the introduction of a standardised…

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2277

Abstract

Purpose

The purpose of this paper is to present the views and challenges from a range of accounting professionals, regulators and preparers with the introduction of a standardised approach to accounting for customer loyalty programmes (CLPs). It aims to highlight the ambiguities of the classification of commercial transactions, particularly the nature and timing of revenue recognition.

Design/methodology/approach

Comment letters in response to the exposure draft D20 CLPs are analysed together with an exposition of the effect of International Financial Reporting Interpretations Committee (IFRIC) 13 on an early adopter, Qantas airlines.

Findings

Despite limited support for the consensus view advocated in D20, the International Accounting Standards Board (IASB) has upheld the deferred revenue approach consistent with the anticipated outcome of the IASB and Financial Accounting Standards Board revenue recognition project.

Research limitations/implications

The paper analyses the characteristics and views of lobbyists using the IFRIC process. The use of other discourse methodologies may present issues of power within this process.

Practical implications

The paper highlights how the implementation of IFRIC interpretations has the potential to alter reported financial results.

Originality/value

The paper highlights the lobbying process and interpretation process at an international level. It also illustrates how companies can engage accounting interpretations to manage earnings, particularly in times of economic challenges.

Details

Accounting Research Journal, vol. 23 no. 2
Type: Research Article
ISSN: 1030-9616

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Book part
Publication date: 9 August 2012

Stephanie Dehning Grimm and Drew Hoag

There is an ongoing discussion in the United States related to whether or not the United States should adopt International Financial Reporting Standards (IFRS). The…

Abstract

There is an ongoing discussion in the United States related to whether or not the United States should adopt International Financial Reporting Standards (IFRS). The Securities and Exchange Commission (SEC) has released four proposals relating to the potential adoption of IFRS in the past five years. The Financial Accounting Standards Board (FASB) has responded to these SEC releases with comment letters. We share our experience with a writing assignment based on these comment letters. The assignment requires students to research the FASB's website as well as the FASB's comment letters responding to SEC releases relating to IFRS. Students then evaluate the benefits and costs of IFRS adoption in the United States. The goals of the assignment are to introduce students to the history of accounting convergence and to allow students to critically assess the benefits and costs of U.S. adoption of IFRS. The assignment is suitable for international, intermediate, and advanced accounting courses.

Details

Advances in Accounting Education: Teaching and Curriculum Innovations
Type: Book
ISBN: 978-1-78052-757-4

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Article
Publication date: 11 April 2016

Christa Wingard, Jan Bosman and Bright Amisi

The purpose of this paper is to assess the influences on the due process of standard-setting with reference to the legitimacy of the financial reporting “soft law” that is…

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2345

Abstract

Purpose

The purpose of this paper is to assess the influences on the due process of standard-setting with reference to the legitimacy of the financial reporting “soft law” that is International Financial Reporting Standards (IFRS).

Design/methodology/approach

This study uses a literature review to analyse the governance structures, due process steps, staffing and funding of IFRS standard-setting activities. The study also uses descriptive statistics to analyse constituent participation during the development of two IFRS standards. The mean, median and standard deviation are used as measures of location and dispersion when analysing constituent participation.

Findings

IFRS governance structures are dominated by G20 countries. The International Accounting Standards Board (IASB) depends on international accounting firms, the European Commission and the G8 countries for its financial viability. Well-resourced national standard-setters, major international companies, international accounting firms and educational institutions are able to second their staff to the IASB thereby providing them with direct lobbying opportunities. The IFRS due process procedures provide opportunities for participation but actual participation is dominated by constituents from Europe with African and South American constituents the least active.

Practical Implications

IFRS are required or permitted in over 100 countries. The IASB, with no legal or formal mandate, is performing a task normally reserved for national standard-setters. The legitimacy of IFRS is questionable if the standard-setting due process is perceived as invalid.

Originality/value

The global financial crisis exposed weaknesses in the IFRS due process when the IASB amended IAS 39 without following the due process. African and South American standard-setters should take note that their lack of participation in IFRS standard-setting, coupled with the influence of powerful stakeholders on IFRS standard-setting, could result in standards not relevant for their regions.

Details

Meditari Accountancy Research, vol. 24 no. 1
Type: Research Article
ISSN: 2049-372X

Keywords

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