Business Law, Public Responsibility, and Ethics Commons^™

Impact Of Life-Cycle Costs Threshold Criteria In The Alternate Design Pavement Bidding Practices Of Public Transportation Agencies, Ilker Karaca, Douglas Gransberg, Ashley F. Buss

Ilker Karaca

This paper proposes a model that enables Department of Transportation (DOT) policy makers to quantify the expected volume of projects that will qualify for letting in their alternate design/alternate bid (ADAB) pavement bidding programs. Current guidance on alternate bidding recommends a fixed percentage as the life cycle cost (LCC) threshold criterion to determine whether pavement selection decisions should be made through ADAB bidding practices. The paper’s analysis shows that the fixed LCC threshold percentage approach may have considerable shortcomings. Instead, a dynamic threshold value is proposed that can subsequently be calibrated by agencies, based on the desired size of their …

In Pursuit Of Good & Gold: Data Observations Of Employee Ownership & Impact Investment, Christopher Geczy, Jessica S. Jeffers, David K. Musto, Anne M. Tucker

Anne Tucker

A startup's path to self-sustaining profitability is risky and hard, and most do not make it. Venture capital (VC) investors try to improve these odds with contractual terms that focus and sharpen employees' incentives to pursue gold. If the employees and investors expect the startup to balance the goal of profitability with another goal - the goal of good - the risks are likely to both grow and multiply. They grow to the extent that profits are threatened, and they multiply to the extent that balancing competing goals adds a dimension to the incentive problem. In this Article, we explore …

Earnings Manipulation: A Report By Robert Lavine On The Business Ethics Research Of Kenneth Rosenzweig And Marilyn Fischer, Kenneth Yale Rosenzweig, Marilyn Fischer

Marilyn Fischer

This column by Robert LaVine in the Chartered Accountants Journal of New Zealand reports on the research of University of Dayton professors Kenneth Rosenzweig and Marilyn Fischer, "Is Managing Earnings Ethically Acceptable? Surveys Show Age and Seniority Affect Attitudes on Earnings Management," >>> published in the journal Management Accounting.

Is Managing Earnings Ethically Acceptable? Surveys Show Age And Seniority Affect Attitudes On Earnings Management, Kenneth Yale Rosenzweig, Marilyn Fischer

Marilyn Fischer

Is managing earnings through accounting methods ethically acceptable? That's the question we recently asked a sample group of management accountants. The response to the survey was enlightening. Our survey was designed as a follow-up and extension of the research done by Bruns and Merchant and published in Management Accounting in August 1990. They found that managers disagreed considerably on whether earnings management is ethically acceptable. They also found that in general the respondents thought manipulating earnings via operating decisions was more ethically acceptable than manipulation by accounting methods. Bruns and Merchant were disturbed by these findings. They were concerned that …

Report Earnings Accurately, Kenneth Yale Rosenzweig, Marilyn Fischer

Marilyn Fischer

As authors of the March article, “Is Managing Earnings Ethically Acceptable?,” we wish to thank Alfred M. King for his letter in the April issue questioning some of the contentions in our article. In a time when corruption seems to be rampant in many aspects of our national life, it is important for accountants to discuss openly what are their ethical responsibilities, and what are the limits to those responsibilities. The credibility of accounting numbers is vital to our success as a profession and as individual accountants. There will be no demand for accounting service if accounting information is not …

How Corporate Culture Impacts Unethical Distortion Of Financial Numbers, Joseph F. Castellano, Kenneth Y. Rosenzweig, Harper A. Roehm

Joseph Castellano

The recent accounting scandals have highlighted the critical role that investor confidence in the accuracy and lack of distortion of accounting data plays in the health of capital markets and, indeed, the whole economy. The legal and moral culpability of top-level company managers (as well as auditors) is an issue that will be addressed by the nation in the coming months. Whether or not legal sanctions are imposed on managers, it would be well to examine some of the reasons managers may feel compelled to distort accounting numbers as well as engage in other actions that damage the interests of …

The Abcs Of Communicating Results, Deborah S. Archambeault, Morgen Rose

Deborah Archambeault

Communicating results is an integral part of the internal auditor's job, and The IIA's International Standards for the Professional Practice of Internal Auditing recognizes its importance by specifying in Standard 2420 that communications should be "accurate, objective, clear, concise, constructive, complete, and timely." In its 2009 survey. The Biggest Internal Audit Challenges in the Next Five Years, Protiviti, a global consulting firm, ranked communication with management and the audit committee as one of the biggest challenges facing internal auditing through 2012. Their subsequent 2010 Internal Audit Capabilities and Needs Survey identified presentation skills as the top "need to improve" personal …

Standard Costing Variances: Potential Red Flags Of Fraud?, Cecily A. Raiborn, Janet B. Butler, Lucian Zelazny

Lucian Zelazny

This article focuses on how standard cost variances can be used in detecting potential fraudulent activities. Each primary type of variance (material, labor, and overhead) is addressed with a discussion of possible inappropriate causal factors. Additionally, internal controls, graphic techniques, and other methods that can be implemented to combat fraud are provided.

Nol Poison Pills: Using Corporate Law For Tax Purposes, Sarah J. Webber, Karie Davis-Nozemack

Sarah J Webber

Hundreds of thousands of corporations report net operating loss (NOL) carryovers every year.1 Corporations, with the benefit of NOL rules, may turn disappointing losses into favorable tax results. During economic recovery, corporations are in better position to fully utilize the benefits of NOLs generated in prior years. NOL usage is not without peril, however. Corporations should carefully monitor corporate ownership changes to ensure that NOLs are not lost to the NOL trafficking rules. Under the NOL trafficking rules, excessive shareholder turnover triggers substantial NOL limitations. Unfortunately, corporations are not in control of their shareholder turnover, and therefore not in complete …

Client Size, Auditor Specialization And Fraudulent Financial Reporting, Joseph Carcello, Albert Nagy

Albert Nagy

This study examines the effect that client size has on the relation between industry-specialist auditors and fraudulent financial reporting. Most of the major accounting firms have organized their audit practices along industry lines, reflecting a belief that industry specialization leads to higher quality audits. Furthermore, regulatory bodies and extant research suggests that larger clients have greater bargaining power and are more likely to be able to convince the auditor to acquiesce to aggressive accounting. Also, it may be more difficult for an auditor to possess industry expertise for larger clients who are likely to be more complex and operate in …

Audit Firm Tenure And Fraudulent Financial Reporting, Joseph Carcello, Albert Nagy

Albert Nagy

The Sarbanes-Oxley Act (2002) required the U.S. Comptroller General to study the potential effects of requiring mandatory audit firm rotation. The General Accounting Office (GAO) concludes in its recently released study of mandatory audit firm rotation that “mandatory audit firm rotation may not be the most efficient way to strengthen auditor independence” (GAO 2003, Highlights). However, the GAO also suggests that mandatory audit firm rotation could be necessary if the Sarbanes-Oxley Act's requirements do not lead to improved audit quality (GAO 2003, 5).We examine the relation between audit firm tenure and fraudulent financial reporting. Comparing firms cited for fraudulent reporting …

Locked In: The Competitive Disadvantage Of Citizen Shareholders, Anne M. Tucker

Anne Tucker

In this Essay, I challenge the conventional corporate law wisdom that unhappy mutual fund investors paying high fees don’t need litigation or regulation to protect their interests because they should simply exit a fund and reinvest elsewhere. The exit solution, advanced by Professors John Morley and Quinn Curtis in Taking Exit Rights Seriously provided an elegantly simply solution to the problem of unhappy indirect investors (e.g., mutual fund investors) given that they are often low-dollar, low-incentive, rationally-apathetic investors facing enormous information asymmetries and collective action problems. According to their view, competition produced by exit, or the threat of exit, is …

External Administration In Corporate Insolvency And Reorganisation: The Insider Alternative, Larelle Chapple, James Routledge

James Routledge

This article considers the merits of alternative policy approaches to management of companies in insolvency administration, in particular from an identity economics theoretical perspective. The use of this perspective provides a novel assessment of the policy alternatives for insolvency administration, which can be characterised as either following the more flexible United States Chapter 11-style debtor-in-possession arrangement, or relying on the appointment of an external administrator or trustee to manage the insolvent company, who automatically displaces incumbent management. This analysis indicates that stigma and reputational damage from automatic removal of managers in voluntary administration leads to “identity loss” and that an …

Segment Disclosures Under Sfas No. 131: Has Business Segment Reporting Improved?, Donna Street, Nancy Nichols, Sidney Gray

Donna L. Street

In response to user concerns regarding segment reporting, the FASB issued SFAS No. 131, Reporting Disaggregated Information about a Business Enterprise, in 1997. SFAS No. 131 became effective for fiscal years beginning on or after January 1, 1998. This research examines the segment disclosures of U.S. Global 1000 companies for both 1997 and 1998 to ascertain the impact and effectiveness of SFAS No. 131 in practice. Specifically, this research considers whether the new requirements have resulted in:

• A greater number of line‐of‐business (LOB) segments for some enterprises, particularly those who claimed to operate in one LOB under SFAS No. …

Compliance With Disclosure Requirements At Germany's New Market: Ias Versus Us Gaap, Martin Glaum, Donna Street

Donna L. Street

This research examines compliance with both International Accounting Standards (IAS) and United States Generally Accepted Accounting Principles (US GAAP) for companies listed on Germany's New Market. Based on a sample of 100 firms that apply IAS and 100 that apply US GAAP, we investigate the extent to which companies comply with IAS and US GAAP disclosure requirements in their year–2000 financial statements. Compliance levels range from 100% to 41.6%, with an average of 83.7%. The average compliance level is significantly lower for companies that apply IAS as compared to companies applying US GAAP. This study provides the first systematic evidence …

Factors Affecting Md&A Disclosures By Sec Registrants: Views Of Practitioners, Ann Tarca, Donna Street, Walter Aerts

Donna L. Street

This study identifies factors influencing the preparation, scope and content of management discussion and analysis (MD&A) reports provided by SEC registrants. We interviewed U.S., Canadian, U.K., and Australian financial executives during the period December 2009 to May 2010 to better understand how the reporting environment affects managers’ ability to provide useful disclosures. Interviewees agree MD&A should be "through the eyes of management"; however, many describe a tension between statutory requirements and providing relevant information for investors. Some believe MD&A is useful for analysts and investors as a summary of the past year and by functioning as a benchmark. Interviewees frequently …

Ifrs Teaching Resources: Available And Rapidly Growing, Robert Larson, Donna Street

Donna L. Street

With the rapid adoption of International Financial Reporting Standards (IFRS) around the world, accounting practitioners, educators, and students are in great need of IFRS instructional materials. This article provides a compilation and review of IFRS teaching resources based primarily on presentations made at a series of IFRS Teaching Workshops sponsored by the IFRS Foundation Teaching Initiative and the International Association for Accounting Education and Research (IAAER). With the purpose of helping those teaching IFRS, especially those with limited prior IFRS teaching experience, we provide detailed information so educators can easily access and use these resources. Several different IFRS teaching strategies …

Besser Pharma: International Accounting For Pensions, K. Geary, Donna Street

Donna L. Street

The purpose of the Besser Pharma case is to bring an international perspective to the coverage of pension accounting. Students are required to read U.S. and international pension accounting standards, complete financial statement research on the pension plans of Besser's competitors, and answer, in a memo to Besser Pharma's CFO, a series of questions about alternative accounting approaches permitted by International Accounting Standard No. 19, Employee Benefits.

The Predictive Ability Of Geographic Segment Disclosures By U.S. Companies: Sfas No. 131 Vs. Sfas No. 14, Bruce Behn, Nancy Nichols, Donna Street

Donna L. Street

This research considers whether recent modifications to segment reporting adequately address analysts' concerns regarding the usefulness of geographic data. Forecast errors for models utilizing SFAS No. 131 geographic sales data are compared to forecast errors for models utilizing SFAS No. 14 geographic sales data. The results indicate a significant improvement in the predictive accuracy of geographic sales disclosures provided under SFAS No. 131. Additional analysis suggests this enhanced predictability may be associated with the revised requirements that companies report sales for the country of domicile and for each individually material country. Overall, our findings appear to support the FASB's argument …

Have ‘European’ And Us Gaap Measures Of Income And Equity Converged Under Ifrs? Evidence From European Companies Listed In The Us, Sidney Gray, Cheryl Linthicum, Donna Street

Donna L. Street

The EU's adoption of IFRS, combined with the SEC's removal of the US GAAP reconciliation requirement for non‐US registrants reporting under IFRS, signifies a major shift toward the acceptance of global standards. Based on 20‐F reconciliations provided by the population of US-listed European companies filing IFRS‐based statements with the SEC in 2005, we examine whether "European" and US GAAP measures of income and equity converged under IFRS. We find that during the period immediately preceding IFRS, for our sample companies, European and US GAAP measures are generally comparable in respect of income and equity. However, as an exception to the …

The Relationship Between Competition And Business Segment Reporting Decisions Under The Management Approach Of Ias 14 Revised, Nancy Nichols, Donna Street

Donna L. Street

This research addresses the relationship between industry competition and managers’ choice regarding whether to separately disclose a business segment following the adoption of International Accounting Standard 14 Revised (IAS 14R) and the management approach to segment determination. Logistic regression reveals a significant negative relationship between disclosure and company returns in excess of the industry average.

Prior research indicated a significant relationship between disclosure and abnormal returns under the industry approach to segmentation. Our results provide evidence that this flexibility persists as managers maintain their ability to aggregate segments to protect excess returns under IAS 14R and the management approach. Our …

The G4'S Role In The Evolution Of The International Accounting Standard Setting Process And Partnership With The Iasb, Donna Street

Donna L. Street

Between 1992 and 2001, representatives of the G4 national accounting standard setting bodies and the International Accounting Standards Committee (IASC) participated in a working group known as the G4+1. Immediately following the formation of the International Accounting Standards Board (IASB), the G4 announced that the working group would no longer meet. Alternatively, the G4 national standard setters would form a partnership with the IASB via liaison representatives.

This paper focuses on the objectives and mission of the G4+1, the G4's relationship with the IASC, the impact of the G4 on the restructuring of the IASC to establish a quality independent …

Large Firms Envision Worldwide Convergence Of Standards, Donna Street

Donna L. Street

Currently, the largest accounting firms1 are working diligently in conjunction with their partners in the International Forum on Accountancy Development (IFAD) to achieve their vision of raising national accounting and auditing standards worldwide to meet or exceed internationally recognized benchmarks. An awareness of the ongoing activities of the firms and their IFAD partners to improve financial reporting, accountability, and transparency worldwide is crucial if other members of the accounting community, including educators, are to support and, more importantly, actively participate in these efforts. IFAD was formed in 1999 on “the premise that the expertise of the accounting profession and the …

Convergence With Ifrs In An Expanding Europe: Progress And Obstacles Identified By Large Accounting Firm's Survey, Robert Larson, Donna Street

Donna L. Street

The International Accounting Standards Board (IASB) acquired greater legitimacy and stature when the European Union (EU) decided to require all listed companies to prepare consolidated accounts based on International Financial Reporting Standards (IFRS) beginning in 2005. This study examines the progress and perceived impediments to convergence in 17 European countries directly affected by the EU's decision. These include: (1) the 10 new EU member countries, (2) EU candidate countries, (3) European Economic Area (EEA) countries, and (4) Switzerland. We utilize data collected by the six largest international accounting firms during their 2002 convergence survey. Additionally, we analyze subsequent events and …

Disclosure Level And Compliance With Iass: A Comparison Of Companies With And Without U.S. Listings And Filings, Donna Street, Stephanie Bryant

Donna L. Street

This research investigates the extent to which the disclosure requirements of the IASC are complied with or exceeded for companies claiming to use International Accounting Standards (IASs). Additionally, the research seeks to identify significant differences between those companies with U.S. listings, U.S. filings, and those with no U.S. listings or filings with regard to (1) compliance with IASC-required disclosures, and (2) level of disclosure (including both mandatory and voluntary items). The findings reveal the overall level of disclosure is greater for companies with U.S. listings. Additionally, greater disclosure is associated with an accounting policies footnote that specifically states that the …

Framework-Based Teaching Of Ifrs Judgements, Christopher Hodgdon, Susan Hughes, Donna Street

Donna L. Street

International Financial Reporting Standards (IFRS) are principles-based accounting standards that provide less prescriptive, interpretive and implementation guidance than do some national standards. Thus, considerable judgement in the application of IFRS is often required. We suggest a three-step approach to teaching IFRS judgments (concepts, to principles/rules, to the judgments required in the application of those rules), and provide accounting educators with guidance and resources that will help them create and enhance students' awareness of the importance of making professional judgments in the application of IFRS. We consider pervasive issues, such as the going concern assumption, materiality and related disclosures, and issues …

Lob And Geographic Segment Disclosures: An Analysis Of The Impact Of Ias 14 Revised, Donna Street, Nancy Nichols

Donna L. Street

To better satisfy important information needs of users of financial statements, as set forth in the IASC Framework, the IASC issued IAS 14 revised (IAS 14R), Segment Reporting, in 1997. IAS 14R became effective for fiscal years beginning on or after July 1, 1998. This research examines the pre-IAS 14R and post-IAS 14R line of business (LOB) and geographic disclosures of a global sample of companies that refer to IAS to ascertain the impact and effectiveness of IAS 14R in practice. Specifically, this research considers whether the new requirements resulted in (1) a greater number of LOB segments for some …

The Impact Of Segment Reporting Under The Ifrs 8 And Sfas 131 Management Approach: A Research Review, Nancy Nichols, Donna Street, Ann Tarca

Donna L. Street

This paper evaluates the impact of adopting the management approach for segment reporting. We review studies of the effect of the application of SFAS 131 and IFRS 8 on the number of reported operating segments and items of disclosure, segment reporting gaps and reconciliations, entitywide geographic disclosures, and competitive harm and decision usefulness of segment information. We report on the advantages and disadvantages of the management approach and explore whether the concerns of critics of adopting the management approach in IFRS 8 have been realized. We also identify opportunities for important and policy-relevant research in the area of segment reporting …

The Impact In The United States Of Global Adoption Of Ifrs, Donna Street

Donna L. Street

This paper presents the pros and cons of the use of IFRS by US companies. The quest for one set of high-quality accounting standards recognised globally is clearly the ideal goal. However, before making a decision on the use of IFRS in the United States (US), the Securities Exchange Commission (SEC) should develop a blueprint to ensure that prerequisites for achieving a true global standard are satisfied and that convergence will continue. An ‘improve and then adopt’ approach appears to represent the best way forward for the US.

An Interview With Sir David Tweedie, Chair, International Accounting Standards Board, Donna Street

Donna L. Street

At their first meeting in June 2000, the International Accounting Standards Board (IASB) Trustees selected Sir David Tweedie to serve as chairman of the newly restructured IASB. Tweedie held several significant positions prior to assuming the Chairmanship of the IASB. Tweedie was appointed Technical Director of the Institute of Chartered Accountants of Scotland in 1978 and moved from there in 1982 to the position of national Technical Partner of the then Thomson McLintock & Co. In 1987, his firm merged with Peat Marwick Mitchell & Co. at which time he was appointed national Technical Partner of KPMG Peat Marwick McLintock. …