Financial statement change and equity risk

Senteney, Michael H.; Stowe, David L.; Stowe, John D.

doi:10.1002/rfe.1069

Cited by 1 publication

(1 citation statement)

References 22 publications

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“…We observe roughly half of our 20‐firm sample chose to adopt the accounting guidance early. Prior research that explores adoption timing decisions finds that early adoption could be the result of a strong sense of corporate and social responsibility (Li & McConomy, 1999), a high view of company status (Stent et al., 2017), related to the size of the firm (Senteney & Strawser, 1990), or a combination of effects on financial statements along with characteristics of the firm (Ali & Kumar, 1994). A firm's decision to adopt guidance early could also be the result of external facing motives.…”

Section: Literature Review and Hypothesis Developmentmentioning

confidence: 99%

Early evidence of the effect of ASU 2017‐12 on derivative disclosure compliance

Troyer

Johnston

Trimble

2023

J Corp Accounting Finance

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The growth in the use of financial derivatives for a variety of purposes has caused increased complexity in derivative reporting standards. As such, financial statement users have asked the Financial Accounting Standards Board to update guidance to increase transparency while preparers seek clearer guidance on the application of standards and a broadened scope of hedge accounting. The most recent derivative accounting guidance update, ASU 2017‐12 (Topic 815), broadens instruments that qualify for hedge accounting, expands allowable hedge accounting techniques, and reduces reporting requirements by omitting the reporting of hedge ineffectiveness. While these changes might simplify reporting requirements, there is the risk that the omitted disclosure would have been relevant to investors’ decision‐making. In this paper, we examine how derivative disclosure practices changed following the implementation of ASU 2017‐12. Using a hand‐collected sample of twenty S&P 500 firms, we calculate a derivative disclosure compliance (DDC) score and find that, on average, DDC scores decreased following firm adoption of ASU 2017‐12. This decline was realized for firms regardless of the notional amounts of derivative instruments held. However, the decline was not significant for early adopting firms suggesting a motivation for completeness by select firms. Our initial findings indicate that the update on derivative disclosures is not being uniformly applied potentially lessening its value to users. As a result, further updates may be necessary.

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