دانلود رایگان مقاله انگلیسی محافظه کاری و کارکنان حسابداری بولتن شماره 108 Q - نشریه الزویر

abstract

This study examines whether firms with large conservative allowances for uncollectible accounts on their balance sheets make significant adjustments to increase net assets in response to Staff Accounting Bulletin No. 108 (SAB 108). To the extent adjustments are not made, we examine the qualitative reasons SAB 108 may have had a limited effect on these large conservative accounting estimates. In the year of enactment, SAB 108 required public companies to adjust material accumulations on the balance sheet that may have occurred prior to enactment of SAB 108 after considering all relevant quantitative and qualitative factors. Our archival results find that no firms made a SAB 108 adjustment and while sample firms tend to, at best, make small reductions to the allowance subsequent to SAB 108’s effective date, most sample firms continue to have potentially overestimated allowances several years later. To understand the qualitative forces underlying this finding, we interview key individuals involved in the financial reporting process and we survey experienced financial executives employed at our sample firms. The findings reveal that organizational forces favor conservatism because being over-reserved helps firms avoid income-decreasing surprises while being under-reserved appears careless. We conclude that conservatism remains a deeply engrained feature of accounting thought and practice, in contrast to recent emphasis by accounting standard setters on neutrality over conservatism.

7. Summary and limitations

This study examines whether firms with large reserves for uncollectible accounts make SAB 108 adjustments in the year of enactment. To the extent adjustments are not made, we interview and survey key players to understand why SAB 108 had a limited effect on conservative estimates. A better understanding of how such balances accumulate on the balance sheet is important because the SEC has indicated that uncorrected misstatements distort the balance sheet and are contrary to the best interests of financial statement users, especially if ‘‘cookie jar” reserves facilitate earnings management in the future (Levitt, 1998; SEC, 2006). Indeed, the SEC identified these among the reasons for issuing SAB 108. Yet, SAB 108 also requires managers and their auditors to consider all relevant quantitative and qualitative information, which raises the importance of examining both factors before making conclusions about necessary adjustments for material accumulations on the balance sheet. In the first stage of the study, we examine archival data related to the allowance for uncollectible accounts to consider the potential for conservative accumulations on the balance sheet. Results indicate that a large fraction of sample firms have potentially material overestimates of the allowance in the year SAB 108 became effective (the 25 largest quantitative differences average almost 60% of net income). While sample firms tend to modestly draw down the allowance subsequent to SAB 108’s effective date, the results suggest they continue to maintain potentially material overestimates on the balance sheet several years after SAB 108 became effective. Therefore, our quantitative evidence highlights an important question as to why further adjustments were not made