Reviews the book "The Accounting Wars," by Mark Stevens.

Reviews the book "Economic Consequences of Financial Accounting Standards: Selected Papers."

ABSTRACT: This paper critically examines the development and current status of research on optimal tax depreciation decisions. It is shown that various researchers have derived piecemeal solutions to an existing decision model and have failed to reflect correctly important provisions of the income tax law. Questions are raised regarding the relative contribution of such studies to the stock of knowledge and the criteria for evaluating future research on optimal tax choices.

ABSTRACT: There are currently no definitive guidelines for reporting the current and noncurrent portions of lease obligations. Two possible approaches to this problem of allocation-the change in present value approach and the present value of the next year's payments approach--have been identified by Swieringa [1984]. This article addresses two aspects of this financial reporting issue. First, evidence is presented to show that the change in present value approach appears to be dominant in current financial reporting practice. Second, it is shown that adjustment of the reported financial statement numbers to those that would be obtained by the present value of the next year's payments approach does not affect the ranking of companies by a number of financial measures. These results suggest that the issuing of guidelines for reporting the current and noncurrent portions of lease obligations by the FASB is not warranted.

ABSTRACT: This research investigates the effects of delays by accounting policy-setters in reconciling the accounting treatment of stock options and stock appreciation rights (SARs). Comment letters to the FASB concerning Interpretation No. 28, observed SAR adoption practices, direct survey results from companies not adopting SARs, stock prices' reaction to the related accounting policy process, and the structure of SAR plans are analyzed. Analysis of the content of lobbyists' letters, descriptive statistics, t-tests, correlation coefficients, and an event study of related AICPA and FASB announcements are utilized. The evidence supports the hypotheses that the accounting treatment of SARs has deterred companies with stock option plans from adopting SARs, has deterred smaller companies from adopting SARs to a greater extent than it has deterred larger companies, has had a discernible "bad news" effect on the market, and has affected the form of those SAR plans which have been adopted. The recent advent of so-called "stock depreciation rights" may well lead to the elimination of SARs, largely due to the accounting treatment of SARs.

ABSTRACT: The information about corporate income taxes disclosed in annual reports has changed significantly since the issuance of Accounting Series Release No. 149 in 1973. Several important issues remain unresolved, however, including the measurement of income tax expense for multiple corporate entities, the application of the indefinite reversal criteria for certain differences between book and taxable income, and the disclosure of current income taxes when the deferral method of accounting for the investment credit is used. Examples from corporate annual reports are used in this article to identify underlying reasons for these reporting concerns, and proposals for improved disclosure are offered.

Illustrates the effects of both the purchase and pooling of interests methods of accounting for business combinations on post-combination financial statements. General rule for combining stockholders' equity accounts under the pooling of interests method; Exceptions to the general rule.

[A model proposed by White [1981, 1984] for distinguishing bankrupt firms that successfully reorganize from those that liquidate is tested empirically in this study. Using probit analysis, two factors were found to have significant discriminating power: the proportion of assets not secured or pledged at the bankruptcy filing date (referred to as the free assets percentage) and the change in profitability in the years preceding bankruptcy. The probit model was able to classify accurately 69 percent of the firms in the estimation sample and 59 percent of the firms in a holdout sample.]

ABSTRACT: A model proposed by White [1981, 1984] for distinguishing bankrupt firms that successfully reorganize from those that liquidate is tested empirically in this study. Using probit analysis, two factors were found to have significant discriminating power: the proportion of assets not secured or pledged at the bankruptcy filing date (referred to as the free assets percentage) and the change in profitability In the years preceding bankruptcy. The probit model was able to classify accurately 69 percent of the firms in the estimation sample and 59 percent of the firms in a holdout sample.

ABSTRACT: A bond exchange is a transaction in which a corporation with an outstanding bond issue offers the current bondholders a new bond in exchange for the outstanding bonds. Bond exchanges affect firms by: (1) altering the cash payments to bondholders, (2) increasing reported earnings, (3) improving financial ratios such as debt/equity, and (4) affecting tax obligations. Although bond exchanges are fairly common, especially in the airline industry, these transactions may be difficult to analyze. This paper reviews the sequence of public disclosures involving an exchange offer, illustrates a present value method for evaluating bond exchanges, and compares the reported results with the "economic" results obtained from this method. Eastern Airlines' 1980 bond exchange is used for illustrative purposes.