Implications for GAAP from an Analysis of Positive Research in Accounting

By S. Kothari, K. Ramanna, Douglas J. Skinner. 2010

647 citations recorded by the source corpus.

Based on extant literature, we review the positive theory of GAAP. The theory predicts that GAAP’s principal focus is on control (performance measurement and stewardship) and that verifiability and conservatism are critical features of a GAAP shaped by market forces. We recognize the advantage of using fair values in circumstances where these are based on observable prices in liquid secondary markets, but caution against expanding fair values to financial reporting more generally. We conclude that rather than converging U.S. GAAP with IFRS, competition between the FASB and the IASB would allow GAAP to better respond to market forces.

Subfields: Accounting, Strategy and Management

View Paper: https://www.semanticscholar.org/paper/008d6c8fc89934c42862522e247d4a1ca941705c

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Citations in the corpus

Evidence on the use of unverifiable estimates in required goodwill impairment (2012, neutral): “With these caveats in perspective, we conclude that the paper provides evidence of managers, on average, using the unverifiable discretion in SFAS 142 to avoid timely goodwill write-offs in circumstances where they have agency-based motives to do so (Kothari et al. 2010).”
A review of tax research (2010, neutral): “37 See Kothari et al. (2010) for a discussion of the uses of accounting information and the use of that information by multiple stakeholders/constituents.”
Capital Allocation and Timely Accounting Recognition of Economic Losses (2011, neutral): “…credible information to shareholders and lenders about negative developments affecting the firm, enabling these parties to respond more quickly to a deterioration in the firm’s profitability and / or financial condition (Kothari et al., 2010) provide a comprehensive discussion of the arguments).”
Accounting Conservatism and Stock Price Crash Risk: Firm-level Evidence. (2012, background): “…of conservative accounting policy offsets managers’ tendencies to hide bad news and accelerate good news recognition in audited financial statements (Kothari et al. 2010; Watts 2003a).2 Moreover, conservative audited earnings dampen managerial incentives to disclose unverifiable favorable…”
Fair value accounting: information or confusion for financial markets? (2014, methodology): “Kothari et al. (2010) assert that, within an efficient contracting”
Accounting Information in Financial Contracting: The Incomplete Contract Theory Perspective (2016, neutral): “Kothari, Ramanna, and Skinner (2010) explicitly discuss arguments for and against regulation in accounting.”
The Effect of Accounting Conservatism on Corporate Investment during the Global Financial Crisis: THE EFFECT OF ACCOUNTING CONSERVATISM (2016, neutral): “…1993, 2003a, 2003b, 2006; Basu 1997; Ball et al. 2000; Ball 2001; Holthausen and Watts 2001; Ball and Shivakumar 2005, 2006; Armstrong et al. 2010; Kothari et al. 2010; Christensen et al. 2016; Watts and Zuo 2016), we expect accounting conservatism to reduce potential underinvestment by improving…”
Is the SEC captured? Evidence from comment-letter reviews (2017, background): “The political behavior of regulators is an important but understudied area in accounting (e.g., Kothari et al. 2010).”