Financial Accounting Standards Research Initiative

Thanks for sharing the link, Lisa! I got a kick out of this, and shared it with my co-authors, as it hits on something we are studying.

Although you propose something different than what we are studying, I like your idea, too!

This also got me thinking more generally about disclosures and the tradeoffs inherent in choosing boilerplate language. On the one hand, boilerplate language is easy to understand but, on the other hand, sticking to boilerplate disclosures surely limits the ability of management to communicate their information (unless they have a wide variety of mad libs to choose from!).

This seems to hit on an issue I have discussed before on consistency versus comparability. Requiring everyone to use similar language will not necessarily increase comparability across firms, unless they are using similar language for similar circumstances. To the extent that firms face different circumstances and events, differences in language may be necessary to communicate those differences to investors and creditors.

Disclaimer: The views expressed here are my own and do not represent positions of the Financial Accounting Standards Board. Positions of the FASB are arrived at only after extensive due process and deliberations.

The following paper gets close to what you suggest:
Disagreement over the persistence of earnings components: evidence on the properties of management-specific adjustments to GAAP earnings
Choi, Lin, Walker, and Young Review of Accounting Studies (2007) 12:595–622
The paper provides some good descriptive evidence of how managers and analysts agree or disagree on “pro-forma” earnings. Unfortunately, in my opinion they misinterpret one of the coefficients in their regressions, which leads them to conclude that management inclusions are persistent when in fact they are not. But the rest of the paper is innovative and informative.