How have US banks adopted the Financial Accounting Standards Board's Level 3 fair value disclosure rules?

Abstract

We examine how banks have complied with the Financial Accounting Standards Board's disclosure rules on Level 3 recurring fair value measurements. We document widespread noncompliance with the basic disclosure requirements. We also find that the noncompliant banks are smaller in size and are associated with lower audit quality, lower institutional ownership and less effective internal controls. Our results should be of use to regulators, auditors and audit committees in the United States, Australia and other countries for assessing the likelihood of noncompliance with fair value disclosure rules and improving the quality of fair value disclosures provided to investors.

Accounting conservatism and firm performance during the COVID‐19 pandemic

“…where X is earnings per share, R is stock returns, D is a dummy variable equal to one when R < 0 and zero otherwise, SIZE is firm size computed as the natural logarithm of total assets (Abu Bakar et al, 2020;Keshk et al, 2020), LEV is the leverage ratio, defined as total debts divided by total assets (Hsu et al, 2020), and MB is the market-to-book ratio (Wei et al, 2020). To estimate conservatism prior to the Covid-19 outbreak, all variables in Equation ( 1) are measured in the fiscal period ending before 1 January 2020.…”

Employee disclosures in the grocery industry before the COVID‐19 pandemic

“…Big 4 auditor is also measured as a dichotomous variable with appointment of a Big 4 auditor equal to one and zero otherwise. Bakar et al, 2020;Hartnett and Shamsuddin, 2020), and existence of audit (Keshk et al, 2020;Khoo et al, 2020), nomination and remuneration committee (ASX Corporate Governance Council, 2019).…”

“…We examine employee‐related disclosures in one industry so that industry specialisation is held constant in our study. Previous research indicates that a Big 4 auditor is associated with higher quality auditing (Francis and Yu, 2009; Keshk et al ., 2020). The four largest accounting firms in Australia are identified as the Big 4 and include Deloitte, Ernst & Young, KPMG and PricewaterhouseCoopers, who provide audit, assurance, taxation, management consulting, actuarial, corporate finance and legal services to their clients (Francis and Yu, 2009).…”

“…Corporate governance variables are measured with reference to ASX Corporate Governance Council recommendations and include measures of board monitoring including board size, independent board, independent chair, dual CEO/chair (Abu Bakar et al, 2020;Hartnett and Shamsuddin, 2020), and existence of audit (Keshk et al, 2020;Khoo et al, 2020), nomination and remuneration committee (ASX Corporate Governance Council, 2019).…”

“…It is measured by the percentage of outstanding ordinary shares held by shareholders who own 5 percent or more of the outstanding shares. Size is measured by log of assets (Keshk et al, 2020). Leverage is an estimate of creditor power (Kent and Zunker, 2017) and measured by total liabilities divided by total assets at balance date (Hsu et al, 2020).…”