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1 – 10 of 134Sharad Asthana and Birendra Mishra
This study investigates the incremental value‐relevance of non‐pension postretirement benefit obligations and expenses (disclosed by firms pursuant to SFAS 106). Our study is…
Abstract
This study investigates the incremental value‐relevance of non‐pension postretirement benefit obligations and expenses (disclosed by firms pursuant to SFAS 106). Our study is motivated by previously published evidences that investors value the SFAS 106 measure of postretirement benefit obligations. However, prior research does not address incremental value‐relevance of the SFAS 106. We address two related questions. First, “do the SFAS 106 measures of non‐pension postretirement benefit obligations and expenses provide incremental value relevance (after controlling for information available from non‐SFAS 106 sources).” Second, “under what circumstances are the SFAS‐106 measures more likely to provide incremental value relevance.” The key findings of this paper are: (i) on average, SFAS 106 measures of postretirement benefit obligations and expenses have no significant incremental value‐relevance after controlling for non‐SFAS 106 information; and (ii) labor intensity and the magnitude of postretirement benefit obligation increases the incremental value‐relevance of SFAS 106 measures.
William R. Cron and Philip L. Kintzele
Because of the dramatic increase in health care costs and the fact that more people are retiring earlier and living longer, the issue of post retirement benefit costs other than…
Abstract
Because of the dramatic increase in health care costs and the fact that more people are retiring earlier and living longer, the issue of post retirement benefit costs other than pensions has become a topic of great interest to issuers and users of financial statements.The Financial Accounting Standards Board is in the process of requiring corporations to report these expected future post retirement costs as liabilities. This paper examines the proposed treatment of post retirement benefits costs and discusses alternative strategies a company may adopt to prepare for implementation of the standard.
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This paper posits that the precision of accounting estimates should be an increasing function of experience due to learning effects. Using a sample of 747 observations for 305…
Abstract
This paper posits that the precision of accounting estimates should be an increasing function of experience due to learning effects. Using a sample of 747 observations for 305 firms for the period 1993–96 with complete data available on the COMPUSTAT, CRSP, and COMPACT DISCLOSURE databases, the paper conducts regression analyses to examine the precision of two estimates (discount rates and health care cost inflation rates) required under SFAS 106. Tests show that the estimation errors for the health care cost inflation estimates decrease with experience, but those for discounts rates do not. The results persist after controlling for the profile of participants of the health care plan, predisclosure uncertainty, and propensity to manipulate by managers. The results are consistent with “learning effect” for health care cost inflation rates that were being estimated for the first time, while no such effect is visible for discount rates that had been estimated in the past for pension plans. The paper also hypothesizes that the market rewards perceived precision of accounting estimates attributable to learning effect. Cross‐sectional tests confirm that the valuation coefficient of postretirement benefit obligations increases in absolute value as the estimation errors decline, suggesting that the market relies more on reported accounting estimates as their perceived precision improves. Thus, the extant research findings of weak or non‐existent value relevance of SEAS 106 liabilities may have been confined to the initial period after the adoption of SEAS 106 when the measurement errors were high. The documented evidence of improvement in precision provides support for FASB's claim that the reliability of accounting estimates, especially those required by complex standards such as SEAS 106, should improve with experience. The evidence of improvement in value‐relevance should also be reassuring for FASB, since one of the intended benefits of SEAS 106 was to provide value relevant information to the investors.
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Jerry G. Kreuze, Sheldon A. Langsam and Gale E. Newell
The objective of this paper is to analyze the lobbying activities of the Financial Accounting Standards Board’s (FASB) constituents to the Exposure Draft of Statement 106…
Abstract
The objective of this paper is to analyze the lobbying activities of the Financial Accounting Standards Board’s (FASB) constituents to the Exposure Draft of Statement 106, “Employer’s Accounting For Postretirement Benefits Other Than Pensions.” Specifically, the association between the provisions which changed between the Exposure Draft and Statement 106 and the comments received in the 477 comment letters was investigated. The results indicate that the four issues (out of 21 issues) that were modified in whole or in part were strongly opposed by the majority (90%: or greater) of respondents. None of the issues favored by respondents were modified. Opinions among respondent types (industrialists, actuaries, public accountants, insurance representatives, and other), while generally quite similar, did vary on certain issues. Since the FASB did modify issues strongly opposed by respondents, the results provide some faith in FASB’s due process procedure and should encourage constituents to participate in future FASB decisions.
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This paper aims to explore how heads in South Korean workplace perceive the retirement preparation of older Korean workers and their roles in accordance with life design…
Abstract
Purpose
This paper aims to explore how heads in South Korean workplace perceive the retirement preparation of older Korean workers and their roles in accordance with life design perspective.
Design/methodology/approach
Qualitative in-person interviews were conducted with top leaders of 15 corporations in small- and medium-sized enterprises (SMEs) and analyzed by using a conventional content analysis.
Findings
Top leaders in corporations consider that older Korean workers whose retirement preparation is their own responsibility have not been actively preparing for their postretirement life. Nevertheless, some of these heads are attempting to assist with career development or career transition. Some believe that older workers should work as long as they are capable and should be retained after the official retirement age.
Research limitations/implications
These exploratory findings are preliminary, and the top-down mechanism might work differently in a specific sector. Future research merits a large-scale investigation of each specific business.
Practical implications
It is implied that policy initiatives should support SMEs with subsidy programs for older workers’ employment, empowering longer working as healthy pathways to postretirement.
Originality/value
This pilot study indicates some degree of possible roles of top corporate leaders for workers’ retirement preparation in terms of career development and career transition and retainment of older workers.
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The purpose of this paper is to examine the determinants of US firms' postretirement benefits choices.
Abstract
Purpose
The purpose of this paper is to examine the determinants of US firms' postretirement benefits choices.
Design/methodology/approach
The paper uses empirical methodology (univariate and multivariate) to test the research hypotheses.
Findings
Industry norm, average employee age, financial structure, and firm size are significant factors in the determination of the proportion of compensation that is deferred. Industry norm, financial structure, and firm size are significant factors that determine the percentage of deferred compensation that is negotiated as defined benefits. Finally, industry norm, corporate tax rates, and cash flow help explain the percentage of defined benefits that are paid in the form of retiree health benefit plans.
Research limitations/implications
Data requirements might bias the sample towards larger sized firms. Data availability limits the number of observations in 2000 and 2001.
Practical implications
The trends in post‐retirement benefits reported in this paper are important for policy makers.
Originality/value
These findings have implications for the baby boomers. The trend to offer smaller proportion of compensation as deferred benefits reflects the increasing costs of deferral to the employers. This increases the employees' responsibilities to save on their own. This also would shift the retirees' dependence on the public pension system for their retirement income. The trend to favor defined‐contribution plans instead of defined‐benefit plans reflects the employers' attempts to diversify their risks of paying promised post‐retirement benefits by transferring the risk to the employee. On the other hand, the popularity of defined‐contribution pension plans also reflects the increased Government's incentives to encourage savings via 401‐k plans and employee's willingness to manage their own pension portfolios.
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Based on the theory of planned behavior, this study aims to examine antecedents of older workers' intentions to engage in postretirement work (PRW) and actual planning for PRW.
Abstract
Purpose
Based on the theory of planned behavior, this study aims to examine antecedents of older workers' intentions to engage in postretirement work (PRW) and actual planning for PRW.
Design/methodology/approach
A cross-sectional survey design was used. About 469 nurses (≥45 years old) from Midwestern United States completed an online survey containing various self-reports on attitude, perceived control, subjective norm, intentions to engage in PRW and actual planning for PRW.
Findings
Results found that attitude and subjective norm (but not perceived control) were positively related to older employees' intentions to engage in PRW. Perceived control was positively related to actual planning for PRW. PRW intentions mediated the effects of attitude and subjective norm on older workers' actual planning for PRW. Finally, perceived control enhanced the positive effect of PRW intentions on actual planning for PRW.
Originality/value
This study contributes to the research by testing the application of the theory of planned behavior to the literature on PRW, further increasing our knowledge of the roles of individuals' attitudinal and cognitive factors in predicting older employees' PRW intentions and actual planning for PRW.
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Bruce A. Leauby, Y. Joseph Ugras and Mary Jeanne Welsh
The Statement of Financial Accounting Standards No.106, Employers’ Accounting for Postretirement Benefitsother than Pensions is a dramatic change in how companies measure the cost…
Abstract
The Statement of Financial Accounting Standards No.106, Employers’ Accounting for Postretirement Benefitsother than Pensions is a dramatic change in how companies measure the cost of providing other post retirement benefits (OPEBs). Companies must change from pay‐as‐you go (cash‐basis) to an accrual method of accounting that is similar to that used for defined benefit pension plans.Our review of early adopters shows that most firms (59 out of 64) elected to recognize the transition obligation immediately, there by reducing current earnings and showing all the bad news in the first year of adoption. From an Income Statement viewpoint, the accrued based OPEB cost under SFAS 106 is 1.63 times larger than the previous year cash basis method, increasing from an average of $13 million to $21 million. From a Balance Sheet perspective, the average recorded liability as a percent of equity exceeds 15 percent. Since companies will adopt this standard over a long transition period, it may be several years before valid comparisons and conclusions can be made about the total impact of SFAS 106.
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Leslie Kren and Bruce A. Leauby
We investigate whether CEO cash compensation is shielded from the significant negative earnings effect of the adoption of FAS 106, Employers' Accounting for Postretirement…
Abstract
We investigate whether CEO cash compensation is shielded from the significant negative earnings effect of the adoption of FAS 106, Employers' Accounting for Postretirement Benefits other than Pensions and whether CEO compensation is adjusted to reflect reductions in post retirement benefits taken from employees. The intervention hypothesis posits that compensation committees actively make adjustments to executive compensation for specific earnings components to reward CEOs for their contribution to firm value. Using within firm, longitudinal analyses, we find that the effects of FAS 106 on CEO cash compensation depend on whether post retirement benefits are reduced. Firms that cut post retirement benefits reward the CEO for value-increasing benefit cuts despite the earnings reduction caused by adoption of FAS 106, while firms that do not cut benefits ignore the earnings reduction caused by FAS 106.
This study aims to address the following four research questions: first, whether auditors report critical audit matters (CAMs) to shield themselves against possible litigation;…
Abstract
Purpose
This study aims to address the following four research questions: first, whether auditors report critical audit matters (CAMs) to shield themselves against possible litigation; second, whether reporting quality affects auditors’ propensity to report CAMs; third, whether auditors’ tenure length – reflecting familiarity with clients’ financial reporting – affects their likelihood to report CAMs; and fourth, whether auditors’ conservatism increases the likelihood of CAMs reporting.
Design/methodology/approach
Data are manually collected from audit reports including CAMs in 10-K, then financial data are collected from the Capital IQ database, and market data are collected from the CRSP database. Using propensity score matching, the initial sample of companies with CAMs is matched with companies without reported CAMs. Performance adjusted discretionary accruals, real earnings management proxy, Khan and Watts’ (2009) C-score, propensity to issue a going concern opinion, Dechow et al.’s (2011) F-Score, Rogers and Stocken’s (2005) model and Houston et al.’s (2010) model are used to measure reporting quality, auditor conservatism, misstatement risk and litigation risk, respectively.
Findings
The results do not show that auditors report CAMs opportunistically to shield themselves from litigation risk. However, the results do suggest that auditors have a greater tendency to report CAMs when reporting quality is low and when they are more conservative. On the other hand, they have less tendency to report CAMs in their first year of engagement.
Research limitations/implications
The findings of this study have important implications for the auditor behavior literature as it shows that, when it comes to reporting CAMs, auditors actually behave objectively and do not report in a trite way. This study also provides early archival evidence on a standard that relates to the first major change to the auditor’s report in decades. To the best of the author’s knowledge, it is the first to provide evidence on the association between auditor conservatism and auditors tendency to report CAMs and the first to triangulate prior research on auditor litigation risk by providing the first archival evidence on the auditors “litigation-shielding” concern.
Practical implications
This study examines whether auditors attempt to meet the stated objective of reporting CAMs by signaling information about reporting quality. This study demonstrates that reporting CAMs is not a “boilerplate” communication. This study has implications for standards setters, as it shows that CAMs are reported in a way consistent with the objectives of the new standard, namely, via signaling information in the audit report on the quality of the financial statements.
Originality/value
In terms of originality, this paper uses a manually collected sample and, to the best of the author’s knowledge, is the first to focus on auditor’s behavior rather than on investors or clients reactions to CAMs. Also, this paper addresses a recently issued standard using US data and archival approach, rather than experimental. This paper also provides relevant evidence related to concerns raised earlier but were not empirically examined, such as reporting CAMS as “boilerplate” expectations. This paper provides new evidence on the auditors’ behavior with regard to litigation risk.
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