Accounting Series Releases - Explained
What is an Accounting Series Release?
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Table of ContentsWhat are Accounting Series Releases?How are Accounting Series Releases Used?Accounting Series Releases in PracticeAcademic Research on Accounting Series Releases ASRsPanel titlePanel title
What are Accounting Series Releases?
Official accounting declarations or assertions released by the Securities and Exchange Commission (SEC) on financial reporting matters are referred to as Accounting Series Releases (ASRs). These releases by the SEC are intended to improve financial requirements and principles guiding financial reporting. Professional accountants and auditors have access to updated accounting principles and procedures through ASRs that are released by the SEC. Procedures for filing financial statements, auditing policies and disclosure guidelines are contained in ASRs.
How are Accounting Series Releases Used?
The Securities and Exchange Commission issue Accounting Series Releases (ASRs) as a way of releasing guidelines and rules of financial reporting to professionals in the accounting industry. In April 1937, the first ASRs was issued by SEC. It was published with the aim of refining accounting principles and requirements to suit standard financial reporting. Discrepancies in accounting principles and vague accounting concepts used by professionals at that time have rise to the issuance of the first ASRs. Financial statements were heavily ambiguous and the filing of financial statements didn't meet the required standards. These issues warranted the development of ASRs as a response to financial reporting matters.
Accounting Series Releases in Practice
After the first Accounting Series Releases (ASRs) was published on April 1, 1937, the SEC has released hundreds of ASRs. As different issues arose in accounting principles used for financial reporting, each publication of ASRs addressed vital issues. For instance, ASRs 85 and 86 addressed issues like deferred taxes which ASR 70 addressed employee stock options. Other financial matters addressed by ASRs include reporting of common stock, net income and losses and other trends in financial reporting. In 1982, the SEC began to present Accounting Series Releases (ASRs) as Financial Reporting Releases (FRRs). In recent times, FRRs are published and also posted on the SEC website for professionals in the accounting industry to easily access it.
Academic Research on Accounting Series Releases ASRs
- ACCOUNTING SERIES RELEASES, RELEASES, A. S. ACCOUNTING SERIES RELEASES.Accounting series releases, Rappaport, L. H. (1961). Accounting series releases. New York Certified Public Accountant (pre-1986), 31(000005), 350.
- ACCOUNTING SERIES RELEASES, WEAVER, G. E. ACCOUNTING SERIES RELEASES.The financial and market effects of the SEC's accounting and auditing enforcement releases, Feroz, E. H., Park, K., & Pastena, V. S. (1991). The financial and market effects of the SEC's accounting and auditing enforcement releases. Journal of accounting research, 29, 107-142. This paper was nominated for the American Accounting Association's Seminal Contributions to the Accounting Literature Award (See Linked Data below). As the first published precursor to the Sarbanes-Oxley Act of 2002, Section 704: Study of Enforcement Actions, it explores three questions related to the SEC's accounting enforcement program: (1) what types of accounting and auditing problems motivate enforcement actions, (2) what are the consequences of investigations on targets' financial statements, managers, and auditors, and (3) how do investors and other market agents view the SEC's actions? The SEC enforcement program, which consists of investigations and subsequent injunctive actions or administrative proceedings against offending registrants and auditors, is designed " to concentrate on particular problem areas and to anticipate emerging problems" (SEC,1989,p.1). The potential for SEC enforcement action provides incentives for corporate officers and independent CPAs to avoid unacceptable practices whose "effective prosecution is essential to preserving the integrity of the disclosure system" (SEC, 1989,p.81). The SEC summarizes its accounting-based enforcement actions in the Accounting and Auditing Enforcement Releases (AAERs). We examined 224 AAERs, issued between April 1982 and April 1989, describing the results of investigations against 188 firms. In the sample period, the SEC most often pursued overstatements of accounts receivable and inventories resulting from premature revenue recognition and delayed write-off, respectively. These two accounts make up 70% of the investigations. The income effects of these financial disclosure violations average more than 50% of reported income. We find that the disclosure of these reporting violations changed expectations of targets' future earnings as reflected in financial analysts' reduced earnings estimated after the disclosures.Disclosures and investigations of reporting violations have other consequences. Typically, targets' managers settle enforcement actions by consenting to an injunction that prohibits future violations of securities laws. Subsequently, more than 72% of the enforcement targets fired or forced the resignations of top managers and 81% were sued by their shareholders. In 42% of our sample, the SEC also censured the target's auditor; criticisms and penalties were more likely for smaller audit firms. In exploring how market agents react to the enforcement process, we focus on market returns around disclosures of alleged reporting violations, investigations, and final settlements. Disclosures of reporting violations are associated with average two-day abnormal returns of -13%; the magnitude of these returns is highly correlated with the earnings impact of the disputed accounting. We also observe abnormal returns of -6% at disclosures of investigations, even when the accounting errors were announced earlier. These negative returns imply substantial incentives for managers to avoid these investigation. We do not observe any changes in targets, share values at the investigations' final settlement. Section 2 describes the SEC enforcement process. Section 3 documents the effects of the SEC investigations and settlements on firms' financial statement, managers, and auditors. Section 4 addresses the stock market's reactions to the disclosure of reporting violations, investigations, and settlements. Section 5 provides conclusions and policy implications.
- Accounting Aspects of Business Combinations, Barr, A. (1959). Accounting Aspects of Business Combinations. Accounting Review, 175-181.