Understanding Financial Accounting Standard 87

Revsine, Lawrence

doi:10.2469/faj.v45.n1.61

Cited by 42 publications

(3 citation statements)

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“…They find that firms shift COGS to income-decreasing special items. It is not an easy way of shifting due to the non-recurring nature of special items (Revsine et al , 2005). The shifting of COGS to special items is not a viable option for firms in some situations.…”

Section: Theoretical Background and Hypothesis Developmentmentioning

confidence: 99%

Expense shifting and revenue shifting in the income statement: substitutes or complements?

Bansal

2022

SAJBS

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PurposeThe study aims at examining the relationship between the forms of misclassification practices, namely expense shifting and revenue shifting. In particular, the study aims at identifying the form of shifting that has been preferred by firms to meet the industry average profitability.Design/methodology/approachCore earnings and operating revenue expectation models are used to measure expense shifting and revenue shifting, respectively. The panel fixed-effects models are used to control for unobserved heterogeneity across industries and time.FindingsBased on a sample of Bombay Stock Exchange-listed firms, the author finds that firms prefer expense shifting over revenue shifting to meet industry average profitability, implying that firms choose the shifting tool based on the relative advantage. Further, the findings deduced from the empirical results demonstrate that firm life cycle and mandatory adoption of International Financial Reporting Standards (IFRS) moderates the relationship between shifting forms and industry average profitability. However, the negative impact of IFRS on shifting practices is found to be less pronounced among BigN audit firms.Originality/valueThe study is among the pioneering attempt to document the substitution relationship between shifting forms. It is the first study that examines a form of classification shifting, where gross profit and core earnings both change as an effect of misclassification.

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Section: Theoretical Background and Hypothesis Developmentmentioning

confidence: 99%

Expense shifting and revenue shifting in the income statement: substitutes or complements?

Bansal

2022

SAJBS

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“…Givoly and Hayn (2000) pointed out that conservatism is the selection criterion between accounting principles that leads to the minimization of cumulative reported earnings and net assets through lower revenue recognition and lower asset valuation. According to Kieso et al (2004) and Revsine et al (2005), conservatism is the accounting process that is likely to understate net assets and cumulative income. According to Dickhaut et al (2010), conservatism avoids the overstatement of net assets and income, limiting actions of earnings manipulation.…”

Section: Theoretical Backgrounds and Prior Studiesmentioning

confidence: 99%

Accounting conservatism and income smoothing practices in EU food and drink industry

Bahloul

Francesco

Riccardo

2021

BFJ

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PurposeThe purpose of this paper is to identify the application of the fundamental principle of accounting conservatism within the EU food and drink industry. Furthermore, the authors would also investigate in-depth the above relationship in two different subsamples (income smoothers and non-income smoothers).Design/methodology/approachAll EU-listed companies of the food and drink industry were identified covering the year 2019. Eckel's model was used to classify listed companies as smoothing or non-smoothing, and Basu's model was adopted to test the degree of conditional conservatism.FindingsThe results indicate that conservatism is strongly present in food and drink industry and also in its subindustries. We also showed that non-smoothing firms had higher levels of conditional conservatism in terms of more opportunity to recognize future economic losses because the market could use the stock return data to anticipate future losses contained in the information regarding profits.Research limitations/implicationsOne limitation of this work is the small size of the investigated companies. The authors demonstrate that the likely increased use of conservatism produces better credibility in the EU markets. Practical implications indicate a higher degree of monitoring of the accounting practices adopted by firms. Regulators have to set accounting policies to enhance the quality of the informational environment, investors and shareholders might exercise control over executives' decisions, and lenders might impose contractual clauses requiring the timely disclosure of “bad news.”Originality/valueThis industry is “belted” from any external speculations. This research made it possible also to observe theoretical relationships between the financial information provided by the EU food and drink industry that contributes to the market distinction between smoothers and non-smoothers.

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“…From 1992 to 1995, he was a member of the FASB's Financial Accounting Standards Advisory Council. He twice served on the AAA's Financial Accounting Standards Committee, in 1976-1978and 1989-1992, and he was on the editorial boards of The Accounting Review (1971-1974, and as editorial consultant, 1977-1980), Journal of Accounting andPublic Policy (1982-2007), and the U.K. journal, Accounting and Business Research (1986Research ( -2007.…”

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confidence: 99%