Does the FASB’s Simplification Initiative reduce the quality of reported earnings? Evidence from ASU 2016-09
The FASB’s Simplification Initiative aims to “reduce cost and complexity in financial reporting while maintaining or improving the quality of information reported to investors” (FASB 2014). Our study examines whether the Simplification Initiative is successful at maintaining or improving the quality of reported information while simplifying financial reporting. As a research setting, we focus on one particular project of the initiative: ASU 2016-09 Improvements to Employee Share-Based Payment Accounting, which requires the recognition of excess tax benefits and tax deficiencies in net income, whereas the prior accounting regime required only balance sheet recognition (in most instances). Using a difference-in-differences design, we find a reduction in the quality of reported earnings information after ASU 2016-09. In cross-sectional tests, we find that the reduction is greater for firms that are more impacted by the ASU: in particular, (i) firms that more extensively use share-based compensation and (ii) firms with more volatile stock prices. The documented effects are economically meaningful, with an average post-ASU reduction of 21.7% in the earnings response coefficient for firms impacted by ASU 2016-09. Our results are important to understanding the unintended consequences of the FASB’s Simplification Initiative, especially as the FASB actively continues to identify and add new projects to the initiative on an on-going basis
Year of publication: |
[2022]
|
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Authors: | Chuk, Elizabeth ; Wang, Qiao Annie ; Xia, Shijun Tonni |
Publisher: |
[S.l.] : SSRN |
Saved in:
freely available
Extent: | 1 Online-Ressource (55 p) |
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Type of publication: | Book / Working Paper |
Language: | English |
Notes: | Nach Informationen von SSRN wurde die ursprüngliche Fassung des Dokuments September 3, 2021 erstellt |
Other identifiers: | 10.2139/ssrn.3917385 [DOI] |
Source: | ECONIS - Online Catalogue of the ZBW |
Persistent link: https://www.econbiz.de/10013405945
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