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FOR
IMMEDIATE RELEASE
DATE:
March 26, 2007
The Financial Accounting Standards Board (FASB) has named
two UW Business School faculty members to its new seven-member
Financial Accounting Standards Research Initiative (FASRI).
Shiva Rajgopal, the Herbert Whitten Professor of Accounting,
has joined the initiative’s survey research team. Frank
Hodge, an assistant professor of accounting and a Lane A.
Daley Faculty Fellow, has joined the experimental research
team.
"The fact that the FASB has invited two of our professors
to serve on this important research initiative speaks volumes
about the quality and reputation of the UW Business School’s
faculty," says Dean James Jiambalvo. "It’s
a testament to research that is rigorous, relevant and immediately
applicable to the economy."
Both Rajgopal and Hodge see their appointments as an honor
and, more importantly, an opportunity – to investigate
the ramifications of financial standards before they are
even implemented, and then to share their findings with the
policy makers themselves.
"Accounting researchers are trained to be objective.
We tend to shy away from policy making, but rather produce
papers
on the results of policy that the policy makers can digest
if they choose to," says Rajgopal. "This is an
opportunity to influence policy with our research."
"Before FASB implements a standard," Hodge adds, "we
can show them some potential effects."
To do so, the members of the new proactive research group
will explore financial accounting’s fundamental questions
(such as, what do users want from financial statements?)
and major debates (historical cost vs. fair value on income
statements, for instance).
Hodge and Rajgopal believe the benefits of this partnership
will go both ways. In addition to offering the researchers
a privileged "sneak preview" of potential standards,
the FASB also will provide invaluable access to financial
professionals for their studies.
"For surveys and experiments, we always have trouble getting
participants who actually reflect the subject pool that we
want to look at (in my case, individual investors)," Hodge
says. "So often we use MBA students as proxies. Getting
access to financial professionals is a huge benefit of this
partnership."
Financial professionals and industry itself should feel a
far larger benefit. Accounting policy can have unintended
and far-reaching consequences. Hodge points to the Sarbanes
Oxley Act, hastily passed by Congress in 2002, as a cautionary
tale. The legislation’s requirement that firms invest
considerable resources on internal controls is likely one
reason why young firms are choosing not to go public or to
list on foreign exchanges.
Another example is the recently enacted FASB standard that
requires firms to expense all stock options. A common misperception
was that this requirement would cause firms to decrease executive-level
compensation. "However," Hodge explains, "many
firms ended up simply cutting the number of options granted
to lower-level employees, while leaving the number of options
granted to senior executives virtually unchanged."
Hodge and Rajgopal hope that their research input will help
the FASB anticipate such unintended consequences and shape
more effective, efficient financial policy. "For the
first time, the FASB is inviting us into the process, to
collaborate on the ideas and use the data to help set standards," Hodge
says.
"We don’t know if the FASRI will succeed or fail," Rajgopal
says, "but it’s an interesting experiment."
Adds Hodge: "I see very little downside and huge potential
upside."
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