International Advances in Economic Research

, Volume 1, Issue 4, pp 426–430 | Cite as

Earnings management by the early adopters of SFAS No. 106

  • James A. Smith
  • Zabihollah Rezaee


Statement of Financial Accounting Standard (SFAS) No. 106 on Nonpension Postretirement Benefits (NPB) provides managers with a relatively long adoption window and choice of transition methods which can be used by affected companies to manage earnings. This paper examines whether management's choice of adoption timing is motivated by the desire to manage earnings. Fisher's [1934] exact probability analysis is used to test the hypothesis regarding profitability of a sample of 200 early and late adopters of SFAS No. 106. The results indicate that the profitability of adopting the income-reducing accounting standard (SFAS No. 106) early is significantly higher for more profitable firms than for less profitable firms.


Economic Growth International Economic Probability Analysis Earning Management Transition Method 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.


Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.


  1. Bruns, W. J.; Merchant, K. A. "The Dangerous Morality of Managing Earnings,"Management Accounting, August 1990, pp. 53–7.Google Scholar
  2. Espahbodi, H.; Strock, E.; Tehranian, H. "Impact of Equity Prices of Pronouncements Related to Nonpension Postretirement Benefits,"Journal of Accounting and Economics, December 1991, pp. 323–46.Google Scholar
  3. Fisher, R. A.Statistical Methods for Research Workers, 5th ed., Edinburgh: Oliver and Boyd, 1934.Google Scholar
  4. Gart, J. "The Comparison of Proportions: A Review of Significance Tests, Confidence Intervals and Adjustments for Stratification,"Review of the International Statistical Institute, vol. 39, 1971, pp. 148–69.Google Scholar
  5. Gujarathi, M. R.; Hoskin, R. E. "Evidence of Earnings Management by the Early Adopters of SFAS No. 106,"Accounting Horizons, December 1992, pp. 18–31.Google Scholar
  6. Hershman, A. "Making Money in Stock-Based Swaps,"Dun's Business Month, November 1981, p. 66.Google Scholar
  7. Leftwich, R. W. "Aggregation of Test Statistics: Statistics Versus Economics,"Journal of Accounting and Economics, January 1990, pp. 37–44.Google Scholar
  8. Norton, C. L. "Pension Accounting: Effects of Early Adoption,"The CPA Journal, March 1988, pp. 46–51.Google Scholar
  9. Rezaee, Z.; Hayes, R. D. "SFAS No. 106 Causes Firms to Reexamine Postretirement Benefits,"The Central Business Review, Winter 1995, pp. 31–7.Google Scholar
  10. Rezaee, Z.; Lindbeck, R. S. "How Companies Can Start Implementation of SFAS No. 106 Now: A Step-By-Step Guide,"The Practical Accountant, October 1991, pp. 31–8.Google Scholar
  11. Senteney, D. L.; Strawser, J. R. "An Investigation of the Association Between Financial Statement Effects and Management's Early Adoption of SFAS 87,"Review of Business and Economic Research, Spring 1990, pp. 12–22.Google Scholar
  12. Siegel, S.Nonparametric Statistics for the Behavioral Sciences, New York: McGraw-Hill, 1956.Google Scholar
  13. Stone, M.; Ingram, R. W. "The Effect of Statement No. 87 on the Financial Reports of Early Adopters,"Accounting Horizons, September 1988, pp. 48–61.Google Scholar
  14. Williams, F. "Health Liability Funding: New Twist on Old Plan,"Pensions and Investment Age, September 1988, p. 86.Google Scholar

Copyright information

© Atlantic Economic Society 1995

Authors and Affiliations

  • James A. Smith
    • 1
  • Zabihollah Rezaee
    • 1
  1. 1.St. Cloud State University and Middle Tennessee State UniversityUSA

Personalised recommendations