Financial Accounting Standards Research Initiative

Richard Mergenthaler has a paper on SSRN titled “Principles-Based versus Rules-Based Standards and Earnings Management.” When I read the title I thought for sure the article would argue that principles-based standards lead to more earnings management because there was more flexibility. To my surprise, the paper presents arguments that rules-based standards lead to more earnings management. [...] Read more > >

An interesting article was posted on SSRN last month titled Rules-Based Accounting Standards and Litigation by Dain Donelson, John McInnis, and Richard Mergenthaler. The article discusses the association between rules-based standards and litigation and whether rules serve more to convict or to defend firms. In the conclusion, the authors write: Overall, we find support for the [...] Read more > >

In my technical accounting research class and in recent consulting work, I often have been reminded of the need for reasoned judgment in our profession. With the general move toward more objectives-based standards (using the SEC parlance), the need for professional judgment only will increase.  Recognizing the need to teach and understand what professional judgment [...] Read more > >

I hope everyone is refreshed and ready for the new year — and a challenging one it will be for standard setters, with the convergence deadlines rapidly approaching.  To get you started, here are some thoughts on Principles vs. Rules, from Paul Miller and Paul Bahnson, academics who have a regular column (The Spirit of [...] Read more > >

For most of this decade, the Financial Reporting Issues Conference has been my favorite accounting event of the year.  Taking a Bayesian perspective, I also view it as the most informative:  every year, what I learn changes my beliefs more than any other conference. I will be writing some posts about the substance of the conference, [...] Read more > >

I just read the abstract of a forthcoming paper (Kvaal and Nobes 2010) that compares the accounting policies of blue chip companies in the largest five stock markets that use IFRS. By comparing the policy disclosures in annual reports, the authors find “significant evidence that pre-IFRS national practice continues where this is allowed within IFRS.”  [...] Read more > >

One of the topics that came up in last week’s Round Table on Alternative Conceptual Frameworks was a discussion of the true and fair override. It came up when we were talking about one difference between US GAAP and IFRS being that the FASB’s conceptual framework is not authoritative. Even though IFRS requires [...] Read more > >