Financial Reporting Journal - Summer '98

CONTENTS

• President's Letter
• 1997 FARS Conference Report
• 1998 Meeting Agenda
• Announcement

PRESIDENT'S LETTER
Robert J. Swieringa
Cornell University

I have been grateful for the opportunity to serve the Financial Accounting and Reporting Section as President. Our President-Elect, Gregory B. Waymire of the Goizueta Business School at Emory University, will assume the leadership of the Section at the business meeting in New Orleans.

I want to thank the following individuals for serving in important positions in the Section during the past year: Tom Schaefer as Secretary-Treasurer, John Smith as Vice-President, Practice, Roland Dukes as our Council Representative on Council, Charles McDonald as Editor of the Financial Reporting Journal, William Collins as Chair of the Continuing Professional Education Committee, and Robert Bricker as the section's Webmaster. In addition, I want to thank the following individuals for serving as Regional Coordinators:

• William Baber, Mid-Atlantic Region
• David Ziebart, Midwest Region
• Robert Hoskin, Northeast Region
• Jens Stephan, Ohio Region
• Kirsten Ely, Southeast Region
• Jody Magliolo, Southwest Region
• Bruce Miller, Western Region

The membership of the Section includes 1,296 paid memberships and 246 pending memberships, for a total of 1,542.

About 73 percent of the membership is from the United States and about 27 percent is from outside the United States.

The objective of the Section is stated in the AAA directory as follows:

The objective of this section is to give greater attention to financial accounting and reporting and to improve the effectiveness and efficiency of education, research, and professional practice by (1) disseminating and evaluating teaching methods and materials, (2) encourag-ing, facilitating, and publicizing research interests and projects, and (3) creating oppor-tunities for interchange and cooperation between academics and practitioners.

In 1997, I created three committees to focus on the education, research, and professional practice elements of that objective. I asked Larry Revsine of Northwestern University to chair the teaching committee, Douglas Skinner of the University of Michigan to chair the research committee, and Robert Herz of PricewaterhouseCoopers to chair the professional practice committee.

Teaching

The teaching committee was asked to consider the dissemination and evaluation of teaching methods and materials. In its discussions, the committee observed that the number of undergraduate accounting majors has been declining. Two causes for the decline were advanced: 1) decreased demand for entry level accountants by large accounting firms, and 2) increased attractiveness of alternative undergraduate majors, including corporate finance and information systems.

Having fewer undergraduate accounting majors results in decreased enrollments in elective financial reporting courses and decreased demand for accounting faculty. A possible course of action is to make elective financial reporting courses more attractive to a larger number of non-accounting majors, including those majoring in corporate finance and information systems. The focus of the elective courses would need to emphasize how required accounting methods affect resource allocation decisions.

The committee also observed that intermediate accounting courses are almost disappearing from some MBA programs and for many of the same reasons-fewer students concentrating in accounting, large accounting firms hiring fewer MBAs in accounting and auditing, and a lack of perceived relevance of content.

The committee believes that changes in the philosophy, approach, and materials in elective financial reporting courses can help reverse these declines. The committee recommended that a 1998-1999 teaching committee be charged to identify schools and programs that have taken steps to reverse these declines and to organize a panel session at the 1999 AAA annual meeting to discuss alternative approaches. Those approaches may include 1) working with finance and other departments or groups to design courses with enhanced appeal to non-accounting majors, 2) extensive redesign of the elective curriculum, and 3) extracting modules from existing courses for targeted groups of students. The committee believes that the FAR website can be used to bring innovations to members of FAR.

Research

The research committee evaluated the current state of financial accounting and reporting (FAR) research and concluded that the state of that research is quite healthy:

• FAR research accounted for about 59 percent of all papers published in The Accounting Review and about 34 percent of all papers and 59 percent of all commentaries published in Accounting Horizons over the last three years.
• FAR research is well represented at the 1997 and 1998 AAA annual meetings.
• FAR papers dominated research conferences held by several accounting journals.

Based on its assessment of the current state of FAR research, the research committee offered two conclusions:

• That FARS does not need its own conference. There are many opportunities for FAR research to be presented, discussed, and published. One possible exception is for unique "niches" that may need to be filled, but the AAA Regional and Annual Meetings provide opportunities to address special opportunities.
• That FARS does not need its own journal. FAR research is well represented in top accounting journals. One possible exception is for particular areas of FAR research that are not being well-served by existing journals, but the committee is hard-pressed to identify those areas.

The research committee also offered three suggestions for possible actions by the section about FAR research:

• Increased coordination of teaching, research, and professional practice. The Section can and should try to bring the three areas together. An example is the AAA/FASB annual conference that addresses relationships between FAR research and professional practice.
• Technology is changing the way that FAR research is disseminated. The ability to transfer FAR research on the internet provides increased opportunities for the FARS Website to become a significant vehicle for sharing FAR research. The FARS Website currently is underpublicized and underutilized for research purposes.
• Communication of FAR research to the corporate community. There is a perceived need to communicate FAR research to the corporate community beyond the FASB and SEC. Few CEOs or CFOs have a working knowledge of FAR research.

Professional Practice

The professional practice committee considered several activities that include academics and practitioners in FAR issues;

• Practitioners are active on the AAA Financial Reporting Standards Committee and participate in the annual AAA/FASB Financial Reporting Conference.
• Academics participate as members of the Financial Accounting Standards Board (FASB), the Financial Accounting Standards Advisory Committee (FASAC), FASB task forces, American Institute of Certified Public Account-ants (AICPA) committees, and International Accounting Standards Committee (IASC) Steer-ing Committees.
• Academics are commissioned by special groups (e.g., the AICPA's Special Committee on Finan-cial Reporting, the Independence Standards Board, the SEC staff, the SEC Practice Section Executive Committee of the AICPA) or by professional firms to undertake research studies in specific areas.
• Academics, practitioners, standard setters, regulators, and others have participated in a series of roundtable discussions about current financial reporting topics (e.g., derivatives, business combinations, intangibles, etc.).
• Academics and practitioners participate in several professional firm initiatives and programs with the academic community, including the Deloitte & Touche Trueblood Conferences, the Price Waterhouse Annual Symposium, the Arthur Andersen New Faculty Seminar, the Coopers & Lybrand Academic Roadshows, and so on.

The research committee offered several sugges-tions:

• Academics should seize opportunities to interact with practitioners. These opportuni-ties include interacting with local and national offices of large professional firms and with recently retired practitioners, reading professional journals to learn about the hot buttons and challenges in the profession, engaging in FASB, IASC, SEC, and AICPA activities whenever possible, and pursuing possible student internship opportunities.
• Academics should consider avenues for relevant research on current financial accounting issues, including accounting for business combinations, international accounting issues, and the business reporting model.
• Academics should seize opportunities to exchange views with practitioners attending AAA meetings, including dinners, parties, and other ways. Have you talked with a practitioner today?

I want to thank Larry Revsine, Douglas Skinner, and Robert Herz for chairing the three committees and the individuals who interacted with them. The FAR section is grateful for their contributions.

1997 FARS CONFERENCE REPORT
Wayne Landsman
University of North Carolina

A Financial Accounting and Reporting Section conference was held October 31-November 1, 1997 at the Kenan-Flagler Business School of the University of North Carolina at Chapel Hill. The conference included presentations of six research papers, selected from among 35 submissions. Dan Collins (University of Iowa), John Elliott (Cornell University) and Wayne Landsman (University of North Carolina) selected the papers and organized the conference. Participants included authors of accept-ed and submitted papers, discussants, and invited panelists. The conference included four sessions comprising paper presentations and discussant comments. Two of the sessions also included panel discussions and breakout sessions.

The first session, moderated by Maureen McNichols (Stanford University) was on derivatives, and included two papers: "Evidence on Interest Rate Risk Management & Derivatives Usage by Commercial Banks," by Anwer Ahmed (University of Florida, presenter), Anne Beatty (Penn State) and Carolyn Takeda (University of Florida), and "The Usefulness of SFAS 119 Derivatives Disclosures for Assessing the Foreign Exchange Risk Exposure of Manu-facturing Firms," by Franco Wong (UC Berkeley). Stephen Ryan (New York University) was the discussant. Jane Adams, Assistant Chief Accountant of the SEC, and Phil Ameen, Controller and Financial Vice President of General Electric, provided insights from regulatory and preparer per-spectives in leading panel discussions.

The second session, moderated by Grace Pownall (Emory University) included one paper, "Revalued Financial, Tangible & Intangible Assets: Assoc-iations with Share Prices & Non-Market-Based Value Estimates," by Mary Barth (Stanford University, presenter) and Greg Clinch (Australian Graduate School of Management). Mark Lang (University of North Carolina) and Jim Leisenring, Vice Chairman of the FASB, provided discussant comments and insights on intangibles from a standard-setting perspective.

The third session, moderated by Bala Dharan (Rice University), dealt with nonfinancial information, and include two papers, "Financial Reporting Discretion & Corporate Disclosure Policies: Evidence from the Software Industry," by Ron Kasznik (Stanford University), and "The Information Content of Non-financial Disclosures: Evidence from the Semiconductor Industry's Book-to-Bill Ratio," by Uday Chandra (University of Oklahoma), Andrew Procassini (Santa Clara University), and Greg Waymire (Emory University, presenter). Robert Lipe (University of Oklahoma), who recently finished a stint as the academic fellow at the SEC, was the discussant. Steven Percoco, President of Lark Research, provided insights from the vantage point of a securities analyst.

The final session, moderated by Pat O'Brien (London Business School), dealt with issues of cross-listing and market liquidity. Carol Frost (Dartmouth College) presented her paper co-authored with Christine Botosan entitled "Regulation, Disclosure, and Market Liquidity." Doug Skinner (University of Michigan) and Walter Teets (Gonzaga University), the 1997-98 SEC academic fellow, provided discussion and regulatory insights on the paper.

Baruch Lev, the after dinner keynote speaker, provided thought-provoking and stimulating insights into the history and future of financial reporting.

Luncheon, Speaker Walter Schuetze

• Report from Section President, Robert J. Swieringa
• Report from the Immediate Past-President, Wayne R. Landsman, Chair of the Nominating Committee, and the taking of nominations from the floor
• Vote by attending Section members on the nominations for President-Elect and Vice-President from practice
• Financial report and budget presentation by the Secretary-Treasurer, Tom Schaefer, followed by a vote from attending Section members on the proposed 1998-99 budget.
• Assumption of office, remarks, and new business, Gregory B. Waymire

ANNOUNCEMENT

SEC ACADEMIC ACCOUNTING FELLOW-SHIPS: The U.S. Securities and Exchange Commission has two fellowship programs for accounting professors. Both present outstanding opportunities to learn about and participate in the standard-setting and regulatory process in a hands-on setting. The research-oriented fellowship is in the Office of the Chief Accountant, and requires a PhD, a strong background in financial economics, and a CPA (or enough coursework to be able to sit for the exam). The Fellow acts as a research resource for the Office, as well as participating in Office projects. Contact the Office of the Chief Accountant, Mail Stop 11-3, at the address below for more information. The practice-oriented fellowship is in the Division of Corporation Finance, and requires a Masters, a CPA, and teaching experience in upper-level/advanced financial accounting courses. The Fellow develops and presents training modules on current accounting-related topics for accountants and attorneys in the Division. Contact Robert Bayless, Division of Corporation Finance, Mail Stop 4-10 for more information. Currently the Division is looking for candidates for spring and summer 1999, and for the academic year 1999-2000. Address inquiries to the above office/division at:

U.S. Securities & Exchange Commission
450 Fifth Street, NW
Washington, DC 20549