Can the FASB Regain Its Mojo? Ciesielski, Jack T.
Accounting horizons,
06/2022, Volume:
36, Issue:
2
Journal Article
Peer reviewed
Open access
SYNOPSIS In recent years, the FASB has concerned itself with simplification of accounting standards, rather than prioritizing the improvement of financial reporting for the benefit of investors. ...While companies grow more complex and larger, and place more investments in intangible assets, financial reporting has not kept pace. This is making financial statements less relevant than ever. In its nearly 50-year history, FASB has responded well to the needs of investors when circumstances demanded an effective response. This was evidenced by its relatively speedy, experimental approach to inflation accounting in the late 1970s. Contrast that to its slow-motion response on intangible asset recognition and disclosures, a project languishing over 20 years. FASB's agenda has become clogged as the board devotes more of its attention and resources to the Private Company Council's needs. An open question: can the FASB regain its former intense focus on investor needs and put aside simplification efforts?
The number of firms reporting earnings on a non‐GAAP basis has increased dramatically over the last decade, and non‐GAAP reporting is now commonplace in capital markets. This proliferation of ...non‐GAAP reporting has renewed both regulators’ and standard setters’ interests in these alternative performance metrics. For example, the SEC, FASB, and IASB have all recently questioned what this increasing reporting trend means for IFRS‐ and US‐GAAP‐based reporting and whether these measures are misleading to investors. This increasing focus on non‐GAAP metrics motivates us to synthesize the nearly two decades of research on non‐GAAP reporting to provide insights on what academics have learned to date about this reporting practice. Then, we utilize a novel dataset of detailed non‐GAAP disclosures to provide new descriptive evidence on current trends in non‐GAAP reporting and its recent proliferation. Finally, we discuss important questions for future researchers to consider in moving the literature forward.
ABSTRACT
We use a novel data set to examine the across‐time consistency and across‐firm comparability of firms' non‐GAAP earnings disclosures. Given widespread concern about non‐GAAP reporting among ...regulators, standard setters, the investor community, and academics, our investigation provides timely evidence on how managers' deviations from their own non‐GAAP disclosure history, or the reporting of industry peers, affects how well earnings inform on firm performance. We begin by identifying firms that change their non‐GAAP earnings definition from one year to the next. These deviations are uncommon, but when managers change the items they exclude in calculating non‐GAAP earnings, the changes generally enhance the information in earnings about firms' core performance. We also examine whether non‐GAAP earnings are more comparable than GAAP earnings and find that firms' non‐GAAP adjustments result in greater earnings comparability. Finally, we examine instances in which firms deviate from common sector‐wide definitions of non‐GAAP earnings. We find that these deviations also result in earnings metrics that better represent firms' core operations. Overall, our results suggest that when managers vary their non‐GAAP calculations, either across time or across firms, the resulting non‐GAAP metrics generally enhance the information in earnings about firms' ongoing performance. Thus, our analysis helps mitigate concerns about why managers might vary their non‐GAAP reporting calculations.
RÉSUMÉ
Mesures de résultat non conformes aux PCGR : homogénéité et comparabilité sont‐elles menacées?
À l'aide d'un nouvel ensemble de données, les auteurs étudient l'homogénéité dans le temps et la comparabilité intersociétés de l'information issue de mesures de résultat non conformes aux PCGR que communiquent les sociétés. Compte tenu des préoccupations généralisées que soulève l'information non conforme aux PCGR chez les autorités de réglementation, les normalisateurs, les investisseurs et les universitaires, leur analyse fournit à point nommé des données sur l'incidence qu'ont les dérogations des gestionnaires à leur propre historique de communication d'information non conforme aux PCGR, ou à l'information financière communiquée par leurs homologues du même secteur d'activité, sur l'efficacité avec laquelle l'information que livre le résultat nous renseigne sur la performance d'une société. Les auteurs recensent d'abord les sociétés qui modifient, d'une année à l'autre, leur définition du résultat issu de mesures non conformes aux PCGR. Ces modifications sont peu fréquentes ; cependant, lorsque les gestionnaires changent les postes qu'ils excluent du calcul du résultat non conforme aux PCGR, ce remaniement a généralement pour effet d'améliorer l'information que livre le résultat au sujet de la performance de base des sociétés. Les auteurs se demandent également si la comparabilité des résultats est supérieure lorsqu'ils sont issus de mesures non conformes aux PCGR plutôt que de mesures conformes aux PCGR, pour constater que les ajustements non conformes aux PCGR apportés par les sociétés augmentent la comparabilité des résultats. Enfin, ils se penchent sur les cas dans lesquels la définition que donnent les sociétés du résultat issu de mesures non conformes aux PCGR s'éloigne de la définition qu'en donne généralement leur secteur d'activité. Les auteurs constatent que ces écarts engendrent aussi des mesures de résultat plus représentatives des activités principales des sociétés. Dans l'ensemble, les observations des auteurs semblent indiquer que, lorsque les gestionnaires modifient leurs calculs non conformes aux PCGR, que ce soit dans le temps ou selon les sociétés, les mesures de résultat non conformes aux PCGR qui en découlent ont généralement pour conséquence d'améliorer l'information que livre le résultat au sujet de la performance continue des sociétés. L'analyse des auteurs contribue donc à atténuer les préoccupations quant aux raisons pour lesquelles les gestionnaires sont susceptibles de modifier leurs calculs dans la présentation d'information financière non conforme aux PCGR.
The increasingly pervasive reporting of non-GAAP earnings poses fundamental challenges for investors and analysts. Non-GAAP earnings lack comparability, and related disclosures lack sufficient ...transparency to add comparability. In addition, non-GAAP earnings disclosures may raise potentially troubling questions about management's motivation. We incorporate relevant research in our discussion and conclude with key prescriptions in assessing non-GAAP earnings.
Current Issues and Concerns of the SEC and PCAOB Ciesielski, Jack T.; Weirich, Thomas R.
The Journal of corporate accounting & finance,
November/December 2016, Volume:
28, Issue:
1
Journal Article
Insights on Standard Setting for 2014 Weirich, Thomas R.; Ciesielski, Jack T.
The Journal of Corporate Accounting & Finance,
July/August 2014, Volume:
25, Issue:
5
Journal Article, Trade Publication Article
Peer reviewed
Major accounting agencies and standard setters—the SEC, the PCAOB, the FASB, and the IASB—gathered at the AICPA/SEC/PCAOB's Current SEC & PCAOB Developments Conference in December 2013. What ...accounting and auditing concerns will they be focusing on during 2014? What pitfalls await accountants and auditors this year?
SEC's Last Say on IFRS Work Plan: They're Not Saying Ciesielski, Jack T.; Weirich, Thomas R.
The Journal of Corporate Accounting & Finance,
March/April 2013, Volume:
24, Issue:
3
Journal Article, Trade Publication Article
