This article focuses on the changes that can be made to accounting textbooks so that they can be made more educational and student-friendly. Textbooks should all be published in loose-leaf format. Thereby they may readily be kept up to date. Many publishers gloss over income tax problems; others omit all taxation, because tax laws change so frequently that the book is too clearly dated. To bring out a new edition involves a lot of work and expense. Changing a page or a chapter is simple and cheap. Of course, the initial cost of publishing will be slightly increased; metal ring binders seem to cost more than permanent binding. Also, the publishers would have to insert, on all title pages, the street and number where they do business; so that the purchaser could order new material as it appears. Even the most elementary texts should stress taxation. Authors should take the utmost pains to stress the difference between good accounting and income tax accounting; and the means of keeping books to conform to both. The chapters on Social Security, and Withholding of Income Taxes, should appear in the front of the book, immediately followed by a chapter on Sales Taxes. The loose-leaf system would permit the omission of the last from books shipped to those happy states like New Jersey and Texas which are free from the inequities of sales taxes. The loose-leaf system would also permit separate chapters, each written by a local expert, on the peculiarities of the tax system of each state specifically applied to the small proprietor or partnership.
The purpose of this article is to investigate the information content of the change in the standardized measure (CSM) disclosure reported by oil and gas producers as assessed by market participants. Previous research by Doran et al. (1988) suggests that selected components of the CSM disclosure have a modest influence on share prices. This study reexamines this issue with a more homogeneous sample of oil and gas producers (e.g., excluding Canadian firms), and investigates all ten components of the CSM that firms must currently report. It provides evidence on the usefulness of one of the major supplemental disclosures for oil and gas producers. In particular, it shows that disaggregating the change in reserve value into the required components provides additional information over reporting only the CSM, and that six components provide incremental information relative to the other components and to net income: (1) production; (2) discoveries; (3) purchases of reserves; (4) quantity revisions; (5) price changes; and (6) the change in income taxes. In the early 1980s, the Financial Accounting Standards Board (FASB) and the Securities Exchange Commission (SEC) decided that, although reserve value accounting data would not be reported in the financial statements, supplemental disclosures of reserve values and changes therein (i.e., the CSM disclosure) would be required because such information is not reflected in historical cost financial statements (see FASB 1982; SEC 1982). Thus, this study also contributes to the more general area regarding the incremental information in footnotes relative to information such as net income reported in the financial statements (e.g., see Beaver et al. 1982; Imhoff et al. 1992). Doran et al. (1988) tested for the incremental information content, relative to historical cost earnings, of three reserve value-based measures: (1) the total annual change in reserve value (less reserve purchases and sales), as well as the change in reserve value attributable to (2) discoveries and (3) revisions in price and quantity estimates. They calculated the variables using data filed under Statement of Financial Accounting Standards No. 69 (SFAS No. 69, FASB 1982) for 1982-1984 and found that only the revisions variable provided information on producers and that earnings did not. This study replicates their tests using SFAS No. 69 data over the same period with consistent results. The analyses of Doran et al. are then expanded by investigating the information content of the ten components of the change in reserve value required by SFAS No. 69. The set of information Items currently required are more disaggregated than the set that was required prior to SFAS No. 69. The study results offer new insights and provide the first evidence that gross profits from production are positively associated with returns. In addition, the findings suggest that discoveries and purchases of reserves are negatively associated with returns during the test period. Although this appears to be counterintuitive, it is consistent with analyses of the oil and gas industry by McConnell and Muscarella (1985), Picchi (1985), and Jensen (1986a, 1986b) that the market reacted negatively to oil firms investing in exploration and development (E & D) during this time period. They describe the period as one in which oil prices were declining, and firms were spending too much on E & D, and had excessive levels of reserves. Thus, additions to reserves as measured by CSM components such as discoveries need not be positively associated with returns. In addition, there is some evidence that the tax change component reflects a tax adjustment to the values of the other components. The analysis of the CSM components is replicated using abnormal returns estimated from a market model that includes industry and market indexes. The results show that net income is positively related to abnormal returns, which indicates that earnings do provide information about firm-specific events for producers. The results also indicate that the six CSM components described above are associated with the dual-index returns.
[The purpose of this article is to investigate the information content of the change in the standardized measure (CSM) disclosure reported by oil and gas producers as assessed by market participants. Previous research by Doran et al. (1988) suggests that selected components of the CSM disclosure have a modest influence on share prices. This study reexamines this issue with a more homogeneous sample of oil and gas producers (e.g., excluding Canadian firms), and investigates all ten components of the CSM that firms must currently report. It provides evidence on the usefulness of one of the major supplemental disclosures for oil and gas producers. In particular, it shows that disaggregating the change in reserve value into the required components provides additional information over reporting only the CSM, and that six components provide incremental information relative to the other components and to net income: (1) production; (2) discoveries; (3) purchases of reserves; (4) quantity revisions; (5) price changes; and (6) the change in income taxes. In the early 1980s, the Financial Accounting Standards Board (FASB) and the Securities Exchange Commission (SEC) decided that, although reserve value accounting data would not be reported in the financial statements, supplemental disclosures of reserve values and changes therein (i.e., the CSM disclosure) would be required because such information is not reflected in historical cost financial statements (see FASB 1982; SEC 1982). Thus, this study also contributes to the more general area regarding the incremental information in footnotes relative to information such as net income reported in the financial statements (e.g., see Beaver et al. 1982; Imhoff et al. 1992). Doran et al. (1988) tested for the incremental information content, relative to historical cost earnings, of three reserve value-based measures: (1) the total annual change in reserve value (less reserve purchases and sales), as well as the change in reserve value attributable to (2) discoveries and (3) revisions in price and quantity estimates. They calculated the variables using data filed under Statement of Financial Accounting Standards No. 69 (SFAS No. 69, FASB 1982) for 1982-1984 and found that only the revisions variable provided information on producers and that earnings did not. This study replicates their tests using SFAS No. 69 data over the same period with consistent results. The analyses of Doran et al. are then expanded by investigating the information content of the ten components of the change in reserve value required by SFAS No. 69. The set of information items currently required are more disaggregated than the set that was required prior to SFAS No. 69. The study results offer new insights and provide the first evidence that gross profits from production are positively associated with returns. In addition, the findings suggest that discoveries and purchases of reserves are negatively associated with returns during the test period. Although this appears to be counterintuitive, it is consistent with analyses of the oil and gas industry by McConnell and Muscarella (1985), Picchi (1985), and Jensen (1986a, 1986b) that the market reacted negatively to oil firms investing in exploration and development (E & D) during this time period. They describe the period as one in which oil prices were declining, and firms were spending too much on E & D, and had excessive levels of reserves. Thus, additions to reserves as measured by CSM components such as discoveries need not be positively associated with returns. In addition, there is some evidence that the tax change component reflects a tax adjustment to the values of the other components. The analysis of the CSM components is replicated using abnormal returns estimated from a market model that includes industry and market indexes. The results show that net income is positively related to abnormal returns, which indicates that earnings do provide information about firmspecific events for producers. The results also indicate that the six CSM components described above are associated with the dual-index returns.]
[In this study I reexamine the impact of merger accounting method by using a sample of tax-free mergers drawn from a different time period and using more refined cumulative average residual (CAR) methodology. As in the Hong et al. study, the purchase method sample exhibits significant positive CARs over the entire period, which appear to originate in the interval preceding the announcement. The pooling method sample does not generate any significant residuals or CARs. To identify variables for which merger accounting method may be proxying, covariance analysis is used to determine that variables omitted from the capital asset pricing model (CAPM) do not influence the abnormal returns. Furthermore, probit analysis is used to investigate potential indirect cash-flow effects such as managerial income manipulation. A positive relationship between leverage and income-reducing policies is observed. This suggests that firms with high financial risk (leverage) may prefer purchase accounting to reduce reported earnings and regulators' attention. Tax characteristics of the acquired firms (net operating loss and investment tax credit carryforwards) are also examined as they can result in indirect cash-flow effects, such as reduced postmerger corporate income taxes. The limited data available indicate that tax factors have little impact on the CARs. Finally, a variable representing the relative bargaining strengths of the merging firms is tested for association with accounting method used. A statistically significant relationship is observed, and two implications follow from this result: (1) acquiring firms in a strong bargaining position are more likely to use the purchase method, and (2) as the bargaining strength of the acquiring firm decreases, the consideration given to the target firm increases while the magnitude of the CARs decreases. The contributions of the study are as follows. First, the abnormal returns to tax-free purchase method mergers, first observed by Hong et al., are found to persist and appear to originate during the preannouncement period. Second, other CAPM-omitted variables do not appear to influence these results. Finally, two tests of the association between potential indirect cash-flow effects and the CARs are significant and provide a partial explanation for the observed abnormal returns.]
Reexamines the impact of merger accounting method by using a sample of tax-free mergers drawn from a different time period and using more refined cumulative average residual methodology. Nonmerger-related capital asset pricing model; Postmerger indirect cash-flow impacts.
Reviews the book "Accounting for the Translation of Foreign Currencies: The Effects of Statement 52 on Equity Analysts," by Paul A. Griffin and Richard P. Castanias.