Economic consequences of mandatory GAAP changes: The case of SFAS No. 158

Fried, Abraham N.; Davis‐Friday, Paquita Y.

doi:10.1016/j.adiac.2013.05.001

Cited by 10 publications

(19 citation statements)

References 9 publications

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“…Previous studies find that firms manage reported earnings by employing pension assumptions (e.g., An et al, 2014;Bergstresser et al, 2006;Comprix and Muller, 2006;Glaum, 2009;Li and Klumpes, 2013;Naughton, 2019). Prior research also reveals that the change in pension accounting standard from disclosure to recognition causes firm managers to change actuarial assumptions in order to manage reported accounting numbers (Fried and Davis-Friday, 2013;Jones, 2013). This management of accounting numbers increases auditors' business risk, which causes auditors to increase their audit investment (i.e., audit effort).…”

Section: Accounting Standard For Retirement Benefits (Asbj 2012)mentioning

confidence: 99%

“…In addition to analyzing the effects of disclosed pension liabilities on audit fees and costs, we also examine how the presentation format of pension information affects auditors' decisions. When the pension accounting rules change from disclosure to recognition, firms change pension assumptions to manage reported accounting numbers (Fried and Davis-Friday, 2013;Jones, 2013). This management of reported accounting numbers increases auditors' business risk further.…”

Section: Accounting Standard For Retirement Benefits (Asbj 2012)mentioning

confidence: 99%

“…As auditors treat recognized and disclosed items differently in determining audit costs, their responses can vary depending on the managers' incentives to manage accounting numbers. Firms manage reported accounting numbers by changing their actuarial assumptions (e.g., Bergstresser et al, 2006;Comprix and Muller, 2006;Fried and Davis-Friday, 2013;Glaum, 2009;Jones, 2013;Naughton, 2019). Firms with a large pension plan deficit are more likely to manage reported earnings (Li and Klumpes, 2013), which increases auditors' business risk.…”

Section: Accounting Standard For Retirement Benefits (Asbj 2012)mentioning

confidence: 99%

“…Firm managers' incentives to manage or manipulate reported accounting numbers are likely to increase when accounting rules change from disclosure to recognition (Holthausen and Watts, 2001). The change in pension accounting standard from disclosure to recognition leads firm managers to manage reported accounting numbers by changing their actuarial assumptions (Fried and Davis-Friday, 2013;Jones, 2013). Prior research employing proprietary data from audit firms reports that auditors address their business risk by increasing their effort, charging a higher risk premium, or both (e.g., Bedard and Johnstone, 2004;Bell et al, 2001;Johnstone andBedard, 2001, 2003;O'Keefe et al, 1994;Simunic and Stein, 1996).…”

Section: Literature Reviewmentioning

confidence: 99%

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Recognition versus Disclosure and Audit Fees and Costs: Evidence from Pension Accounting in Japan

Kusano

Sakuma

2020

Journal of International Accounting Research

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Statement No. 26, Accounting Standard for Retirement Benefits, requires Japanese firms to recognize previously off-balance sheet pension liabilities on their balance sheets. We explore auditors' responses to recognized versus disclosed pension liabilities in the Japanese audit market. We use a pre-Statement No. 26 versus post-Statement No. 26 setting to analyze whether and how disclosed versus recognized pension information affects audit fees and costs. We show that disclosed pension liabilities are processedsimilarly to recognized previously off-balance sheet pension liabilities when audit fees are determined. However, we find that associations with audit costs differ between disclosed and recognized pension liabilities. We also find that audit costs' differential relations with disclosed and recognized pension liabilities are particularly pronounced for firms with alarge pension plan deficit. Overall, our results suggest that auditors scrutinize recognized amounts more closely than disclosed financial information, thereby increasing the reliability of accounting information.

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Section: Accounting Standard For Retirement Benefits (Asbj 2012)mentioning

confidence: 99%

Section: Accounting Standard For Retirement Benefits (Asbj 2012)mentioning

confidence: 99%

Section: Accounting Standard For Retirement Benefits (Asbj 2012)mentioning

confidence: 99%

Section: Literature Reviewmentioning

confidence: 99%

See 2 more Smart Citations

Recognition versus Disclosure and Audit Fees and Costs: Evidence from Pension Accounting in Japan

Kusano

Sakuma

2020

Journal of International Accounting Research

View full text Add to dashboard Cite

show abstract

“… See Blankley and Swanson (1995) andBrown (2004).5 The Fama-French industries are defined on Kenneth French's website http://mba.tuck.dartmouth.edu/pages/faculty/ken.french/Data_Library/ det_12_ind_port.html.6 Recent research provides evidence that the recognition of the funded status of postretirement plans increased the volatility of corporate balance sheets(Chang, 2009;Fried, 2012;Knowles, 2011) Fried and Davis-Friday (2013). found that firms attempted to mitigate the impact of the new standard by increasing their discount rate in subsequent periods.…”

mentioning

confidence: 99%