The effect of ASU 2014–08 on the use of discontinued operations to manage earnings
Tóm tắt
Accounting regulations require firms to separately disclose the profits and losses from discontinued operations. These discontinued operations are typically excluded from the definition of income used by investors, analysts, and others. Barua, Lin, and Sbaraglia (2010) show that managers manipulate earnings by shifting core expenses into discontinued operations. In light of recent changes in the regulations pertaining to this item, we reexamine this finding. The new rules, which change the criteria for what can be considered discontinued and the associated disclosure requirements, substantially reduce any significant evidence of earnings management using discontinued operations. A decline in the manipulation of large negative discontinued operations drives this reduction. We also find that the new rules decrease the frequency and persistence of discontinued operations.
Tài liệu tham khảo
Barnea, A., Ronen, J., & Sadan, S. (1976). Classificatory smoothing of income with extraordinary items. The Accounting Review, 51(1), 110–122.
Barua, A., Lin, S., & Sbaraglia, A. (2010). Earnings management using discontinued operations. The Accounting Review, 85(5), 1485–1509.
Bhojraj, S., Hribar, P., Picconi, M., & McInnis, J. (2009). Making sense of cents: An examination of firms that marginally miss or beat analyst forecasts. The Journal of Finance, 64(5), 2361–2388.
Black, D. E., & Christensen, T. E. (2009). US managers’ use of “pro forma” adjustments to meet strategic earnings targets. Journal of Business Finance & Accounting, 36(3–4), 297–326.
Bradshaw, M. T., & Sloan, R. G. (2002). GAAP versus the street: An empirical assessment of two alternative definitions of earnings. Journal of Accounting Research, 40(1), 41–66.
Brown, L. D., & Caylor, M. L. (2005). A temporal analysis of quarterly earnings thresholds: Propensities and valuation consequences. The Accounting Review, 80(2), 423–440.
Callahan, S. (2014). Comment letter on ASU 2014–08 on behalf of Ford Motor Company.
Curtis, A., McVay, S., & Wolfe, M. (2014). An analysis of the implications of discontinued operations for continuing income. Journal of Accounting and Public Policy, 33(2), 190–201.
DeFond, M., & Zhang, J. (2014). A review of archival auditing research. Journal of Accounting and Economics, 58(2–3), 275–326.
Fan, Y., Barua, A., Cready, W. M., & Thomas, W. B. (2010). Managing earnings using classification shifting: Evidence from quarterly special items. The Accounting Review, 85(4), 1303–1323.
Farrell, K., & Whidbee, D. (2003). Impact of firm performance expectations on CEO turnover and replacement decisions. Journal of Accounting and Economics, 36(1–3), 165–196.
Financial Accounting Standards Board. (2001). Statement of financial accounting standards no. 144. Norwalk, CT: FASB.
Financial Accounting Standards Board. (2014). Accounting standards update 2014–08. Norwalk, CT: FASB.
Financial Accounting Standards Board. (2015). Accounting standards update 2015–01. Norwalk, CT: FASB.
Ji, Y., & Rozenbaum, O. (2019). Analysts’ suspicions of real earnings management and conference call narratives. The George Washington University and Montana State University working paper.
Kinney, M., & Trezevant, R. (1997). The use of special items to manage earnings and perceptions. Journal of Financial Statement Analysis, 3(1), 45–54.
Koh, P. S. (2007). Institutional investor types, earnings management, and benchmark beaters. Journal of Accounting and Public Policy, 26, 267–299.
Lipe, R. C. (1986). The information contained in the components of earnings. Journal of Accounting Research, 24, 37–64.
Matsumoto, D. A. (2002). Management's incentives to avoid negative earnings surprises. The Accounting Review, 77(3), 483–514.
Matsunaga, S. R., & Park, C. W. (2001). The effect of missing a quarterly earnings benchmark on the CEO’s annual bonus. The Accounting Review, 76(3), 313–332.
McVay, S. E. (2006). Earnings management using classification shifting: An examination of core earnings and special items. The Accounting Review, 81(3), 501–531.
Morris, R., & Velanand A. (2014). Comment letter on ASU 2014–08 on behalf of Deloitte and Touche LLP.
Riedl, E. J., & Srinivasan, S. (2010). Signaling firm performance through financial statement presentation: An analysis using special items. Contemporary Accounting Research, 27(1), 289–332.
Ronen, J., & Sadan, S. (1975). Classificatory smoothing: Alternative income models. Journal of Accounting Research, 13(1), 133–149.