1. Chapter 9: Uniformity and Disclosure
Accounting Theory ( 5th edition)
Wolk, Tearney & Dodd
Copyright March, 2000
Chapter 9: Uniformity and Disclosure
Relevant circumstances
Nature of finite and rigid uniformity and flexibility
Extent that standards are using finite uniformity, rigid uniformity, or flexibility
Disclosure
Items providing important information to users
Chapter 9: Uniformity and Disclosure: Some Policy Making Decisions

2. Relevant Circumstances
Are economically significant circumstances that can affect broadly similar events
Two types of relevant circumstances
Present magnitudes, conditions known at the time of the event
Future contingencies, factors that can be known only at a later date
Are an extremely important aspect of the uniformity issue

3. Management & Relevant Circumstances
Selection of accounting methods might be affected by motives different than those dictated by the relevant circumstances
maximize reported income... management compensation based on reported income
Minimize reported income...fear of government intervention on antitrust grounds
Smoothing income...less fluctuation = less risk
Potentially capable of distorting income measurement

4. Uniformity
Finite uniformity: Equates prescribed accounting methods with the relevant circumstances in generally similar situations
Rigid uniformity: Prescribes one method for generally similar transactions
Generally, if finite uniformity can be attained, it is superior to rigid uniformity for the standpoint of decision making

5. Measurement and/or Cost Constraints
Broad Event Class
Complex Event
Simple Event
Measurement and/or Cost Constraints
Rigid
Uniformity
Measurable
And Cost
Effective
Finite
Uniformity
Rigid
Uniformity

6. Approaches to Uniformity
Rigid uniformity
Finite uniformity
Flexibility
applies to situations in which there are no discernible relevant circumstances
but more than one possible accounting method exists
Prevalent in GAAP

7. Disclosure
Is related with information in both the financial statements and supplementary communications-including
Footnotes
Post-statement events
Management’s analyses
Additional information beyond historical costs
Refers to the whole area of financial reporting and not simply to the financial statements

8. Disclosure Function of SEC
Accounting Theory ( 5th edition)
Wolk, Tearney & Dodd
Copyright March, 2000
Disclosure Function of SEC
Protective disclosure
Informative disclosure...the emphasis since early 1970s
Double-click on the SEC seal if you are connected to the Internet. The hyperlink will take you to the SEC’s web site.
Chapter 9: Uniformity and Disclosure: Some Policy Making Decisions

9. The Disclosure Process Today
Differential disclosure
Annual 10-K
Quarterly 10-Q
Aimed toward professional financial analysts
Additional disclosure?
Information overload
Information asymmetry
Signaling theory
Cost of disclosure for big vs. small firms

10. Items Providing Important Information
Summary Annual Report (SAR)
Condensed financial statements that omit or boil down the detail contained in traditional audited financial statements
Evolved from 1983 FEI study concerned with the readability of annual reports
Jenkins Committee Report (1994)
AICPA study
Concerned with helping users understand a company’s business

11. Key Jenkins Report Disclosures
Segmental disclosures
Core and non-core activities, separate then in the financial statements
Interim reporting
Secondary recommendations

12. Jenkins Secondary Recommendations
Balance sheet items with low verifiability
Innovative financial instruments (derivatives)
Adequate data for user to make forecast
Disclosure about alternatives and methods selected
Valuing internally generated intangibles frowned upon
Eliminate less relevant disclosures

13. Jenkins Committee Report
Does not tangle with FASB’s mission of standard setting
Recommends significant increase in disclosure & changing format of financial statements, at odds with SEC which would like to decrease disclosures in corporate annual reports
Consistent with conceptual framework

14. Jenkins Committee Report
Adopts the user outlook of SFAC No. 1
Appears to be cognizant of market efficiency and its ability to absorb new disclosures
International implications...American firms would be at a disadvantage relative to foreign firms

15. Chapter 9: Uniformity and Disclosure
Accounting Theory ( 5th edition)
Wolk, Tearney & Dodd
Copyright March, 2000
Chapter 9: Uniformity and Disclosure
Relevant circumstances
Nature of finite and rigid uniformity and flexibility
Extent that standards are using finite uniformity, rigid uniformity, or flexibility
Disclosure
Items providing important information to users
Chapter 9: Uniformity and Disclosure: Some Policy Making Decisions