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Due process and the development of financial accounting standards An exploration of comment letters and their influence on financial accounting standards
Walden University COLLEGE OF MANAGEMENT AND TECHNOLOGY This is to certify that the doctoral dissertation by Douglas P. Letsch has been found to be complete and satisfactory in all respects, and that any and all revisions required by the review committee have been made. Review Committee Dr. Jeffrey Prinster, Committee Chairperson, Management Faculty Dr. Mary Dereshiwsky, Committee Member Education Faculty Dr. Elizabeth Gurley, Committee Member Management Faculty Dr. John Nirenberg, University Reviewer, Management Faculty Chief Academic Officer David Clinefelter, Ph.D. Walden University 2010 ABSTRACT Due Process and the Development of Financial Accounting Standards: An Exploration of Comment Letters and Their Influence on Financial Accounting Standards by Douglas P. Letsch M.B.A. in Accounting, University of Phoenix, 2003 B.B.A. in Accounting, University of Texas, 1995 Dissertation Submitted in Partial Fulfillment of the Requirements for the Degree of Doctor of Philosophy Applied Management and Decision Sciences in Accounting Walden University July 2010 ABSTRACT The business community and public are extended the opportunity to participate in the development of financial accounting standards (FAS). Stakeholders are concerned about the reliability of due process provisions for meaningful public participation in changing FAS. This study employed the conceptual framework of due process as explicated within the generally accepted accounting principles (GAAP) doctrine and incorporated in the Financial Accounting Standards Board (FASB) procedures to insure responsiveness and credibility of the system. This research sought to determine if the FASB considers comments received from constituents as part of its due process procedures. Using a random, qualitative, cross-case analysis design, the comment letter component of due process was examined to determine if textual evidence supports or contradicts the legitimacy of the role of due process procedures in FASB decision making. Two FAS projects were randomly selected and then a predetermined number of comment letters were randomly selected from each FAS project. The material aspects from each comment letter were traced to actual FASB discussions, public meetings, or roundtables to validate prior research, which utilized nonrandom sampling techniques apparently without triangulation. In this textual examination of all relevant documents associated with the two random cases, the FASB was found to follow their established due process protocol. This research validates and builds upon prior research and provides triangulation. The public‘s voice was duly considered justifying confidence in FASB‘s due process procedures. The study contributes to social change by providing empirical evidence that can be used to support information programs designed to increase stakeholder confidence regarding due process procedures followed by the FASB. Due Process and the Development of Financial Accounting Standards: An Exploration of Comment Letters and Their Influence on Financial Accounting Standards by Douglas P. Letsch M.B.A. in Accounting, University of Phoenix, 2003 B.B.A. in Accounting, University of Texas, 1995 Dissertation Submitted in Partial Fulfillment of the Requirements for the Degree of Doctor of Philosophy Applied Management and Decision Sciences in Accounting Walden University July 2010 UMI Number: 3412939 All rights reserved INFORMATION TO ALL USERS The quality of this reproduction is dependent upon the quality of the copy submitted. In the unlikely event that the author did not send a complete manuscript and there are missing pages, these will be noted. Also, if material had to be removed, a note will indicate the deletion. UMI 3412939 Copyright 2 010 by ProQuest LLC. All rights reserved. This edition of the work is protected against unauthorized copying under Title 17, United States Code. ProQuest LLC 789 East Eisenhower Parkway P.O. Box 1346 Ann Arbor, MI 48106-1346 DEDICATION I dedicate the pursuit of this degree (and the many long hours and sleepless nights) to my wife, Carla, my sons, Timothy and Peter, and to all my family who have encouraged and supported me in this journey. ii ACKNOWLEDGEMENTS I wish to acknowledge the help and assistance of the members of my committee, Dr. Jeffrey Prinster, Dr. Elizabeth Gurley, Dr. Mary Dereshiwsky, and my academic reviewer, Dr. John Nirenberg. Their recommendations, guidance, and assistance were invaluable. iii TABLE OF CONTENTS LIST OF TABLES Y LIST OF FIGURES vi CHAPTER 1: INTRODUCTION TO THE STUDY 1 Introduction 1 Background 3 FASB 6 Due Process 7 Research Questions 10 The Nature of the Research Study 11 Purpose of Research Study 11 Significance of the Research Study 12 Summary 13 CHAPTER 2: LITERATURE REVIEW 16 Introduction 16 The Procedure of Due Process at the FASB 18 The FASB and its Mission 25 Summary 28 CHAPTER 3: RESEARCH METHODS 29 Introduction 29 Research Design 32 General Methodology 33 Random Selection of Financial Accounting Standards 33 Coding of Financial Accounting Standards and Comment Letters 37 Validity 42 Role of Researcher 43 Summary 43 CHAPTER 4: RESULTS 44 Introduction 44 Determining the Sample for Each Case 44 Gathering Source Data 47 Research Design and Procedures 49 Case 1 52 Introduction 52 FASB Deliberations and Resolutions 53 Exposure Document 55 Comment Letters 57 FASB Analysis of Comment Letters 63 FASB Final Pronouncement 67 Case 1 Summary 70 Case 2 71 Introduction 71 FASB Deliberations and Resolutions 72 Exposure Document 75 iv Comment Letters 76 FASB Analysis of Comment Letters 88 FASB Final Pronouncement 89 Case 2 Summary 90 Findings of the Cases 91 Discrepant Case 94 Observations of Patterns, Relationships, and Themes 95 Quality of Evidence 97 CHAPTER 5: SUMMARY, CONCLUSIONS, AND RECOMMENDATIONS 99 Overview 99 Interpretation of Findings 100 Social Change Implications 106 Procedural Recommendations 107 Recommendations for Further Research 111 Reflections 113 Conclusion 114 REFERENCES 115 APPENDIX 119 CURRICULUM VITAE 154 [...]... will reflect the views of society rather than a small group of individuals, and thus protect the interests of everyone involved with financial reporting Summary Prior research on due process and comment letters contained a nonrandom selection of one or two financial accounting standards and as such, results could not be generalized to the population of financial accounting standards The goals of this research... Introduction The purpose of this research is to increase understanding of the comment letter component of due process within the financial accounting standard setting Prior research on the use of comment letters by the FASB in the development of financial accounting standards did not include random selection of the projects or comment letters This lack of bias protection limits the generalizations to the. .. development of financial accounting standards and the fulfillment of the mission of the FASB Embedded in the second purpose statement is a concept called due process According to Miller, et al (1994) due process is a, ― of procedures used to ensure that the interests of [FASB‘s] set constituents are considered in the development of accounting standards and other pronouncements‖ (p 58) The objective of due process. .. Financial Accounting Foundation (FAF), as having the capacity to assist the SEC in issuing and promulgating (but not regulating) financial accounting standards According to the FASB, the organization is a nonprofit corporation with a mission to ― establish and improve standards of financial 5 accounting and reporting for the guidance and education of the public, including issuers, auditors, users of. .. promulgated by the FASB By exploring the comment letters from the randomly selected financial accounting standards and by viewing all of the supporting due process materials on those standards, research can answer the above questions Details of this process will be covered in chapter 3 11 The Nature of the Research Study The research in this study relates the change in two randomly selected financial accounting. .. ensure that the interests of its constituents are considered in the development of accounting standards and other pronouncements‖ (Miller, Redding, & Bahnson, 1994, p 58) Miller et al also indicate that one component of due process is the solicitation and collection of comment letters on selected FASB projects Comment letters are requested by the FASB in an effort to better understand the opinions and potential... by the FASB in the development of financial accounting standards According to FASB (2002b), ― accounting standards are essential to the efficient functioning of the economy because decisions about the allocation of resources rely heavily on credible, concise, and understandable financial information‖ (p 2) Since the FASB uses comment letters as a part of due process to ― ensure that the interests of. .. in the development of financial accounting standards? 2 According to published documents, what action does the FASB take when a majority of comment letters propose a course of action different from what was originally recommended by the FASB at the onset of the financial accounting standard project? 3 How were the randomly selected financial accounting standards changed as a direct result of the comment. .. Study In the research mentioned above, one or more nonrandom financial accounting standards were selected and models (mostly quantitative) were used to explain the influence of comment letters on the development of financial accounting standards The nonrandom selection and failure to compare with a control group (Maxwell, 2005; Merriam, 1998; Singleton & Straits, 2005), increased the threat to external... clusters of meaning‖ (p 77) The two cases include two published (secondary archival data), randomly selected financial accounting standards One case includes a financial accounting standard where 50 or fewer comment letters were submitted to the FASB (the control group) The second case includes a financial accounting standard where more than 50 comment letters were received by the FASB The changes to the financial . ABSTRACT Due Process and the Development of Financial Accounting Standards: An Exploration of Comment Letters and Their Influence on Financial Accounting Standards by Douglas. stakeholder confidence regarding due process procedures followed by the FASB. Due Process and the Development of Financial Accounting Standards: An Exploration of Comment Letters and Their. regulating) financial accounting standards. According to the FASB, the organization is a nonprofit corporation with a mission to ―establish and improve standards of financial 5 accounting and