An empirical analysis of management's choice of alternatives in adopting Statement of Financial Accounting Standards (SFAS) No. 106
Abstract
The purpose of this research is to examine whether previous academic research could have been used by the FASB ex ante to the issuance of Statement of Financial Accounting Standards No. 106 (SFAS 106), Employers' Accounting for Postretirement Benefits Other Than Pensions, to predict the extent to which management of financially weak companies would defer recognition of OPEB expense and the related transition obligation. Examined is whether the financial condition of a firm can be associated statistically with a decision to adopt an income-reducing financial accounting standard before the mandatory compliance date. Also, examined is immediate versus deferred expensing of the employer's OPEB transition obligation to determine whether a firm's financial position is related statistically to management's choice of transition alternative.
Insight is provided into the predictability of management's choice of timing and method of adoption of an income-reducing standard. Predictions of management's adoption behavior appear to be satisfactory when based upon the income-producing capacity of the firm. Those based upon solvency measures provide less than satisfactory results in terms of transition from DACT expectations to applicability for standard setting. Apparently, previous academic research could have been used by the FASB ex ante to the issuance of SFAS 106 to predict the extent to which management of financially weak companies would defer recognition of OPEB expense and the related transition obligation.* ftn*Originally published in DAI Vol. 55, No. 11. Reprinted here with corrected title.