Discretion vs. uniformity: choices among GAAP

Article Abstract:

The effects of the amount of managers' discretion in reporting current period costs are examined. Particularly, the impact of modifying generally accepted accounting principles (GAAP) on the internal agency problem between current shareholders and their manager as well as the external agency problem between present and future shareholders. Results indicate that the internal agency problem is minimized through the expansion of the managers' discretion. On the other hand, expansion of discretion is counterproductive if the internal and external agency problems exist simultaneously and if measurement of the nonexpense-connected elements of earnings is erroneous. Expansion of discretion is beneficial if the contract of the manager is disclosed to the public or if the nonexpense-related elements of earnings are measured properly. It can therefore be concluded that GAAP evaluation on an issue-by-issue basis is limited.

Executives, Corporation reports, Company reports

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Mandatory versus voluntary disclosures: the cases of financial and real externalities

Article Abstract:

A comparison of mandatory and voluntary disclosures indicates that a disclosure by an accounting firm can change outside investors' perceptions of the distributions of other firms' cash flows and affect the actual distribution of cash flows of other firms. The divergence between optimal voluntary and mandatory disclosures is dependent on what impact a firm's disclosures generate. Factors which impact on the correspondence between a firm's disclosures and its affects are: the nature of externality of a firm's disclosure; the relation between the disclosing firms' shareholders and investors' perceptions of risk; shareholders' and investors' perceptions of the importance of the social welfare function; and the covariance between the cash flows of the disclosing and the affected firm.

Methods, Investments, Disclosure statements (Accounting)

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Lessors' accounting and residual values: Comdisco, Barron's and GAAP

Article Abstract:

The controversial areas of financial reporting of lessors' transactions are analyzed using Barron's magazine's article regarding Comdisco Inc and simulation analysis. According to Barron's, the residual values and other leasing income recognition procedures used by Comdisco were flawed. Competing reporting options are examined by using a simulation based on Comdisco's financial reports. Disclosure and income determination suggestions are derived from the results.

Accounting and auditing, Leases, Comdisco Inc., CDO, Barron's (Periodical)

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