Canadian Accounting for Contingent Gains and Losses

Formal Description

• The Life and Death of the Canadian Contingent Gains and Losses Accounting Standards Project

• By:– Brock Dykeman, University College of the Cariboo– Gary Entwistle, University of Saskatchewan

• Canadian Accounting Perspectives• Vol.3 No. 1 2004

The Standard setting Process

The Current Standard vs. New Standard• Pg 10

Research Question

• Overarching process of standard setting– Highlights the due process (pg24)

• Pg. 6 This study…the story …(of standard setting)

Motivation for the Study

• No other study has looked at the influence of lobbying (behind closed doors) on a proposed standard

• Understanding how the standard(s) is influence by lobbying– Written– Undocumented (CBA meetings)– External lobbying is ineffective– Could be influenced by the strong beliefs of the

standard setters

Underlying Theories

• Theories underling accounting research– Socio-political (the study uses this dominant

paradigm p.6-7)– Economic– Sociological

• Socio-political Sub perspectives– Pluralism– Regulatory

• Regulatory Capture• “Hold-up”• Handbook

– Transparency– Defn of asset and liability (section on contingent g/l)

Formal Hypotheses being tested• N/A

Literature Review

• Academic– Chantiri (1995)– Walker and Robinson (1993)– Waterhouse 1981– Berger 1986

• Practitioner– McDonald Commission Report (1988)– Boritz report (1990)

• Describe what we think is Academic, practitioner & technical

• Studies on favour non-accruals (pg.9 footnote 10)

Research Method

• Interview – Between February and May 1999

• Archival– 90 Comment Letters on Proposal

• Archival (issued by the AcSB)– Press reports– Commentaries– Bulletins– Approved project proposal– Statement of principles– Exposure Draft– Notes related to the task force meetings

Research Design

• Who was interviewed – Just discussed for context (pg.11)– 1 to 2 hrs notes taken, and write-up after (Footnote)

• Comment Letters– Coding– Independent judge– How are they coded – Tutticci

Data Analysis

• Table #1 (pg.17)– Scale

• Data was broken into:– User

• Preparers• Accounting Community• Securities Commission

• Table #2 (pg.20)– Time

• Late • Early

Data Analysis (con’t)

• They found a bias• Executive positions discussed in the narrative• In summary…(bottom pg.18)

Tell the class a story

Conclusion

• They told a story• Pluralistic decision-making process• Task force was very determined (bias)• Voice of the users (ie investors)• Lawyer coalition (pg.24) “hold-up”• Elite people push standards

• Cannot just change accounting standards without considering all stakeholders, make sure the ability to get sufficient audit evidence

• The opposing forces of accounting versus legal

Contributions of the Study

• Usefully to the educators how the standards may be constrained– Hold-up problem

• Earlier meetings with relevant parties • Management can use the study to consider when to

respond to proposed accounting changes (insight)• Re-enforces the economic consequence when switching

accounting standards• Weigh the costs of confronting such opposition to the

proposed standard with the benefits of the new standard• Consider expanding groups to include more financial

statement users

Limitations of the study

• The summary notes from the final task force meeting went missing (footnote 39)– What happened during this meeting to throw the ED

out the window

Areas for future research

• Expanding research to financial statement users– Look at what users thought– Why didn’t they come to play ball

• Apply same research method to another project see if the findings are the same– On this project the CBA stopped this standard, what

effect does just the comment letters have on a very determined group of standard setters

• Small group (very determined group of standard setters) pushed ahead in face of negative comment letters– Is this because they stick up for the actual users (the

unheard voice)

Areas for future research (Con’t)• Does the late responses carry-more weigh and what

does it mean to response time– Disallow late responses change in lobbying efforts

Breakout

• Chris (slides 1-4)– Intro– Formal Description– Current vs New– Standard setting Process

• Kara (slides 5-6)– Research question– Motivation

• David (slides 7-8)– Lit review– Research design & method

Breakout (Con’t)

• Zara (slides 9-11)– Lit review– Research design & method

• Tiff (slides 12-15)– Data analysis– Story time– Conclusion

• Ian (slides 16-19)– Contributions– Limits– Future