The Effect of ASU 2014-08 on the Use of Discontinued Operations to Manage Earnings

2018 ◽  
Author(s):  
Yuan Ji ◽  
James Potepa ◽  
Oded Rozenbaum
Keyword(s):  
Discontinued Operations

Shreffler Stores Accounting Issues Related to Consumer Receivables, Asset Impairment, and Discontinued Operations: A Problem-Based Learning Unfolding Problem

2010 ◽  
Vol 25 (4) ◽  
pp. 775-787 ◽  
Author(s):  
Philip G. Cottell
Keyword(s):  
Financial Reporting ◽  
Problem Based Learning ◽  
Actual Case ◽  
Financial Reports ◽  
Capstone Course ◽  
Accounting Firm ◽  
Accounts Receivable ◽  
Team Working ◽  
Asset Impairment ◽  
Discontinued Operations

ABSTRACT: Shreffler Stores, a large, diversified holding company in the retail industry has recently acquired Value Amalgamated Lots (VAL), a catalog retailer. In the following Problem-Based Learning unfolding problem, students will assume the role as a member of the financial reporting team, working on the Shreffler Stores’ annual report for several periods. Students will focus on issues relating to the operations of VAL, the subsequent impact on the financial reports of Shreffler Stores, and how results drive later management decisions. The events were taken from an actual case encountered in the conduct of an audit performed by a public accounting firm. Among the accounting concepts addressed are accounts receivable, impairments of different kinds of assets, and accounting for discontinued operations. The problem can be used as a whole in a capstone course or in pieces as part of an intermediate course.

The effect of nonrecurring items on goodwill and CEO market-based compensation

2018 ◽  
Vol 17 (2) ◽  
pp. 150-176 ◽  
Author(s):  
Yoshie Saito
Keyword(s):  
Firm Value ◽  
Chief Executive ◽  
Executive Pay ◽  
Content Type ◽  
Book Value ◽  
Special Items ◽  
Industry Level ◽  
The Difference ◽  
Using Data ◽  
Discontinued Operations

Purpose This paper aims to analyze the association between goodwill defined as difference between market and book value of equity and reports of nonrecurring items, namely, special items, discontinued operations and extraordinary items to suggest information related to restructuring activities measured by these items can link the valuation and incentive roles of accounting. Economic intuition suggests that successful managerial efforts should increase firm value. Yet, the link between the valuation and stewardship roles of earnings has been difficult to verify. Design/methodology/approach The author first estimates whether nonrecurring items have an incremental ability to explain goodwill, measured as the difference between market and book value of equity, at the industry level and then estimates whether firm-specific accounting bias is associated with the industry-level signals sent by nonrecurring items. The author then analyzes whether these items are associated with the use of chief executive officer (CEO) market-based compensation. Findings The author’ results show that information contained in special items increases firm-specific goodwill, indicating that it sends signals to investors about future growth opportunities, while that of discontinued operations reduces goodwill, suggesting that it provides signals about the adjustments of book value. She does not find any significant informational role for extraordinary items. She also finds that the signals sent by special items are negatively associated with the use of CEO market-based compensation, while those relayed by discontinued operations are positively associated with the use of market-based pay. Research limitations/implications Contrary to prior studies, the results show special items and discontinued operations are both value and incentive relevant. There are two caveats to this analysis. First, owing to the frequent changes in the definition of discontinued operations, the analysis is conducted using data between 1992 and 2003. Second, some might argue that industry-level incremental R2 might not be appropriate for a compensation analysis. However, entities often use industry norms as a benchmark to set CEO compensation. Thus, it is reasonable to think that industry-level signals matter for executive pay. Originality/value The author’s findings suggest that compensation committees in firms across industries consider the information contained in special items and discontinued operations, and selectively alter the level of incentives to encourage managerial efforts.

Financial statement presentation of discontinued operations

2010 ◽  
Vol 21 (2) ◽  
pp. 97-101 ◽  
Author(s):  
Elaine Henry ◽  
Oscar J. Holzmann
Keyword(s):  
Financial Statement ◽  
Discontinued Operations

Financial performance following discontinued operations

2020 ◽  
Vol 19 (4) ◽  
pp. 429-447
Author(s):  
Binod Guragai ◽  
Paul D. Hutchison
Keyword(s):  
Financial Performance ◽  
Performance Improvement ◽  
Least Square ◽  
Regulatory Change ◽  
Content Type ◽  
Future Performance ◽  
Regulatory Rule ◽  
Prior Literature ◽  
The Impact ◽  
Discontinued Operations

Purpose Prior literature provides empirical evidence that financial performance improves for core remaining operations after a firm discontinues some of their operations. This study aims to examine whether the association between discontinued operations and future financial performance improvement is affected by a regulatory rule (i.e. Statement of Financial Accounting Standards 144 [SFAS 144]) that significantly altered the reporting requirements of discontinued operations. This study also examines whether the association is dependent on the profitability of the operations discontinued. Design/methodology/approach Ordinary least square regressions are used to test the association between discontinued operations and financial performance improvement, conditional on the profitability of operations discontinued in the pre-SFAS 144 and SFAS 144 regulatory regimes. Data on profitability of operations discontinued is hand-collected. Findings Results suggest that firms experience improvement in financial performance following the reporting of discontinued operations in the pre-SFAS 144 era. Using hand-collected data on the profitability of operations discontinued, this research study also shows that improvement in performance is stronger for firms that discontinue loss operations compared to those that discontinue profitable operations. Originality/value This study explores the impact of regulatory change on the association between discontinued operations and future performance. Furthermore, unique hand-collected data is used to understand whether financial performance improvement is conditional on the profitability of the operations discontinued. Results documented in this paper should be of interest to investors, regulators and analysts in understanding the long-term strategic implications of discontinued operations.

Reporting of discontinued operations and dividend payout policy

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Binod Guragai ◽  
Trent Henke ◽  
Glen Young
Keyword(s):  
Financial Reporting ◽  
Payout Policy ◽  
Ordinary Least Squares ◽  
Dividend Payout ◽  
Content Type ◽  
Different Types ◽  
Prior Literature ◽  
Dividend Increases ◽  
The Relationship ◽  
Discontinued Operations

Purpose This study aims to examine the relationship between the types of discontinued operations (i.e. income-increasing versus income-decreasing) and a firm’s dividend payout policy. The authors extend our analysis to examine whether equity investors react differently to dividend payout changes that are preceded by the reporting of different types of discontinued operations. Design/methodology/approach Ordinary least squares regressions are used to test the association between discontinued operations and dividend payouts. The investor response test uses cumulative abnormal return around the announcement of dividend payout changes. Findings The authors find that firms temporarily increase (decrease) their dividend payout in the quarter following the reporting of income-increasing (income-decreasing) discontinued operations. The authors further find that these results are stronger when the magnitude of the income increase or income decrease is larger and when firms report disposal gains or losses. Although prior literature finds evidence that dividend increases are associated with a significant positive market reaction, the results show that investors do not react positively to dividend increases that are preceded by reporting income-increasing discontinued operations. Originality/value This study adds to the literature on the effects of financial reporting (i.e. the types of discontinued operations) on a firm’s payout policy (i.e. dividend payout). The authors also add to the literature that examines investors’ perceptions of a firm’s payout changes when such changes are transitory in nature.

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