Abstract Reviews the book `Event-Driven Business Solutions: Today's Revolution in Business and Information Technology,' by Eric L. Denna and colleagues.
Abstract Reviews the book `Special Report--A Report Guide to Implementation of Statement 106 on Employers' Accounting for Postretirement Benefits Other Than Pensions--Questions and Answers,' by K.E. Dakdduk and Jules M. Cassel.
Abstract ABSTRACT: Estimating market values of assets in absence of an observable market price is a problem that arises often in accounting practice. Examples in the areas of taxation, capital budgeting, current cost accounting, and accounting for leases are discussed herein. A usable valuation scheme for such assets is derived from a modification of the popular two-parameter capital asset pricing model. Indirect empirical evidence is presented which suggests that the valuation scheme yields superior predictions to two competing schemes which have been advanced in the literature: indexing and earnings capitalization. In addition, limitations of the valuation scheme are discussed.
Abstract The article informs that the purpose of this research was to obtain empirical insight into the concept of materiality in external reporting by constructing a mathematical model to describe the way in which a sample of knowledgeable individuals believed materiality judgments ought to be made. A set of 30 hypothetical cases was developed as an experimental instrument. Each case involved either a gain or loss on a noncurrent asset, a change in accounting principle or an uncertainty. In order to insure face validity the cases were developed to conform with parameters estimated from 103 actual financial reporting situations. The 30 cases were administered in a field experiment to 18 partners in national public accounting firms and 15 securities analysts. These subjects were instructed to categorize each case as requiring three alternative types of disclosure. By using the subjects' evaluations as a criterion and the 8 materiality variables as predictors, a multiple discriminate model was developed and validated that replicated the judgmental process of the subjects with 63% accuracy. The model was 84% accurate in discriminating between immaterial cases and material cases.
Our purpose is to investigate the use of geographical segment disclosures. Specifically, we examine whether equity valuations of U.S. multinationals are affected by geographical segment disclosures mandated by Statement of Financial Accounting Standards No. 14: Financial Reporting for Segments of a Business Enterprise (henceforth SFAS 14). Our results suggest that, when unexpected segmental earnings are large, geographical segment disclosures are used. For the most part, however, we find little evidence that these disclosures affect equity values. This research is motivated by the allegation that geographical segment disclosures are essentially useless. SFAS 14 (paragraph 34) allows considerable discretion in defining reportable segments and firms employ coarse definitions, possibly because of an innate fear of disclosure (Wechsler and Wandycz [1990]) or desire to finesse dumping and international transfer-pricing questions (Balakrishnan, Harris, and Sen [1990]). It is not difficult to find anecdotal evidence of coarse segmental definitions. Caterpillar Industries had reported three geographical segments: U.S., Europe, and Other. In June 1990, the company told analysts that Brazilian operations had entered a deep slump. The stock market reaction to this announcement was minimal. A few days later, however, the company informed analysts that this slump would cause second-quarter profits to be less than half the amount reported for the
[Economic and political events have led to utility regulation decisions which, in turn, provide an impetus for significant changes in industry accounting and reporting practices. The prospect of continuing change in the operating environment for utilities suggests that some deferred assets created by regulatory actions are subject to uncertain recovery. Accounting regulators have responded by imposing additional constraints on the firm's ability to record these so-called "regulatory assets." Our results indicate that investors' valuation of regulatory assets depends on the regulatory environment in which the utility is operating. That is, there are cross-sectional valuation differences arising from the market's assessment of the probability that regulators will ultimately allow for the full recovery of the deferred costs.]