Mark Kohlbeck | Florida Atlantic University (original) (raw)

Papers by Mark Kohlbeck

Review of Accounting and Finance, 2018

Purpose This paper aims to examine whether external monitors (auditors and analysts) constrain ea... more Purpose This paper aims to examine whether external monitors (auditors and analysts) constrain earnings strings, an indicator of earnings management, and whether this monitoring is more effective after the implementation of the Sarbanes-Oxley Act of 2002 (SOX), given the emphasis of SOX on improving auditing, financial reporting and the information environment. Design/methodology/approach Agency theory establishes the premise between external monitoring and earnings strings. Auditor tenure and number of analysts following provide measures for external monitoring quality. Using prior research, empirical models explaining the presence of an earnings strings and earnings strings trend are developed to test the hypotheses. Findings Pre-SOX, extreme auditor tenure, indicating lower quality external monitoring, is associated with greater earnings strings trend, and analyst coverage is associated with increased likelihood of earnings strings and greater earnings strings trend consistent wi...

Advances in Accounting, 2019

We investigate whether CFO debt-like compensation incentives and their alignment with CEO debt-li... more We investigate whether CFO debt-like compensation incentives and their alignment with CEO debt-like compensation incentives are associated with financial reporting quality. He (2015) finds that CEO debt-like compensation incentives are associated with higher financial reporting quality. Consistent with agency theory, we extend He (2015) by considering CFO debt-like compensation incentives. Overall, we find that CFO debt-like compensation incentives are associated with better financial reporting quality while controlling for CEO debtlike compensation incentives. These effects are present when the CEO and CFO compensation incentives are aligned with the same party. Further, the CFO effect dominates that of the CEO when examining discretionary accruals, and complements the CEO effect for accrual quality. However, we are unable to find any evidence of an incremental joint effect from the alignment of the CEO and CFO debt-like compensation incentives.

Advances in Accounting, 2017

Prior research shows that managers use discretion in estimating Level 3 financial instruments to ... more Prior research shows that managers use discretion in estimating Level 3 financial instruments to opportunistically manage capital and earnings. We investigate an earlier decision, subsequent classification changes that result in net transfers into the Level 3 classification, to examine whether firms use their discretion to engage in opportunistic transfers. We then investigate whether auditors influence the decision to transfer into the Level 3 classification and/or alter audit fees. Using a hand collected sample of public bank fair value disclosures from 2008 through 2010, we find evidence consistent with firms engaging in opportunistic transfers into the Level 3 classification. We further find evidence that high quality auditors appear to constrain this behavior, consistent with higher quality auditors mitigating some risks associated with Level 3 instruments. We also find evidence that auditors increase fees when managers transfer instruments into the Level 3 classification. Collectively, our findings suggest that auditors manage risks related to Level 3 by both restricting transfers into the Level 3 classification and charging higher audit fees when transfers occur.

Journal of Accounting, Auditing & Finance, 2015

Effective for years beginning on or after December 15, 2008, bargain purchase gains (BPGs) are re... more Effective for years beginning on or after December 15, 2008, bargain purchase gains (BPGs) are recorded within income from continuing operations when the fair value of the net assets acquired exceeds the acquisition cost. Although the Financial Accounting Standards Board (FASB) argues that the BPG treatment more faithfully represents the economics of the transaction, they also acknowledge that it creates an opportunity for inappropriate gain recognition. We examine management opportunism and investor valuations regarding the recognition of a BPG using a sample of 142 acquirers that made Federal Deposit Insurance Corporation (FDIC)-assisted bank acquisitions in 2009 and 2010. We find that acquirer banks with relatively strong incentives to boost earnings are more likely to record a BPG, suggesting that firms use the BPG treatment opportunistically. Despite this finding, we observe that the market values the BPGs, albeit with less persistence than the other major components of operati...

We investigate the impact of the Big8 to the Big4 consolidation of public accounting firms and th... more We investigate the impact of the Big8 to the Big4 consolidation of public accounting firms and the Sarbanes Oxley Act of 2002 (SOX) on auditor industry concentration levels. We find that auditor industry concentration levels increase as the number of Big N auditors decrease. However, the gains are not shared equally among the remaining firms. Specifically, firms with large pre-consolidation industry market shares gain industry market share, while firms with low pre-consolidation shares do not gain industry market shares. Consolidation produces an increasing market share differential between the industry leaders and the lower ranked auditors in the industry. We then explore whether the increase in industry concentration impacts the ability of the largest clients in each industry to employ different auditors. Despite increased industry concentration among industry leading auditors, the commonality of auditors serving the largest two companies does not change significantly as a result of the three major consolidations. Only the Big6 mergers increases the commonality of auditors among the largest four companies. Our evidence suggests that consolidation increases auditor industry concentration levels, but the largest clients, in general, maintain diversity in auditors.

SSRN Electronic Journal, 2013

We examine the relationship between real earnings management (REM) and audit fees. While studies ... more We examine the relationship between real earnings management (REM) and audit fees. While studies have investigated the influence of accrual-based earnings management on audit fees, empirical research is silent on whether REM activities explain audit fees. We report a positive association between both current and prior period REM and audit fees and show that firms with greater incentives to manage earnings drive this relationship. The prior period REM finding indicates that auditors perceive REM as a business risk, whereas the current period effect could reflect either perceived business risk or auditor effort. To provide more insight on the current period effect, we extend our analysis into the banking industry and examine a REM activity (gains trading) that is less likely to require additional audit effort. We again document a positive prior period REM effect but do not find support for the current period effect. Thus, our banking analysis supports the notion that the prior period effect captures increased business risk, and suggests the current period effect in our main analyses is attributable to increased auditor effort. Our study provides evidence that an ancillary cost of REM is higher audit fees.

SSRN Electronic Journal, 2001

This paper provides evidence that regulatory contracts affect firms' accounting choices and risk ... more This paper provides evidence that regulatory contracts affect firms' accounting choices and risk management decisions. Specifically, we investigate whether an exogenous shock to regulatory risk induced by Statement of Financial Accounting Standards No. 115 "Accounting for Certain Investments in Debt and Equity Securities," (SFAS 115) encouraged U.S. banks to deviate from portfolio and risk benchmarks when they adopted the standard. Because we cannot observe relevant benchmarks, we model portfolio and risk decisions as functions of macroeconomic and firm-specific factors using data from a period when regulatory capital was immune to SFAS 115 accounting. We examine a sample of 230 publicly-traded banks and find that 1) irrespective of adoption timing, banks classified too few securities as AFS relative to estimated benchmarks, 2) weaker banks that adopted the standard early classified far more securities as AFS relative to benchmarks, 3) banks altered the size of their securities portfolios along with the levels of interest risk and credit risk as regulatory capital decreased, and 4) the level of interest risk on banks' loan portfolios increased at the time of SFAS 115 adoption. We also explore the 1995 FASB amnesty when firms could 're-adopt' SFAS 115. We find that banks used the 1995 FASB amnesty to undo strategic initial SFAS 115 adoption decisions. Taken together, our findings suggest that SFAS 115 caused some of the accounting and economic consequences predicted by bankers, analysts, and academics.

SSRN Electronic Journal, 2004

Use of terminologies. Because of variations in nomenclature across jurisdictions in Asia, this re... more Use of terminologies. Because of variations in nomenclature across jurisdictions in Asia, this report uses the term "related-party transactions" (RPTs) interchangeably with the terms "connected transactions,""related transactions,""interested-person transactions,""intercompany deals," and "intragroup transactions." Case citations. This report provides actual cases of related-party transactions that occurred in different markets in the Asia-Pacific region. They were gathered primarily from published reports in major English-language newspapers and websites and secondarily from stock exchange and securities commission websites, academic and other institutions' papers, proxy statements, and company annual reports. Each case source is attributed in the footnotes; we have not contacted the companies involved in these cases.

Research in Accounting Regulation, 2010

We explore accounting quality attributes of 19 general-purpose accounting standards implemented o... more We explore accounting quality attributes of 19 general-purpose accounting standards implemented over the past thirty years to increase our understanding of the US standard-setting process in terms of improving accounting quality and the principles vs. rules-based debate. Our study is timely given recent criticism of US standard setting. Evidence on how US accounting standards may impact accounting quality helps evaluate the overall standard-setting process. Our analysis of the accounting standards suggests that the standards contain both principle-and rule-based features. We also perform an analysis of the impact on earnings management (an indication of accounting quality). We find that earnings management indicators decrease following new standards implemented over this time period. These results are consistent with FASB's increasing focus on the balance sheet and enhanced disclosures in implementing standards during this period. Our findings, based on existing standards, can be used to assess the merits of US standard setting and to evaluate proposals on the direction of future standard setting.

Issues in Accounting Education, 2006

Krispy Kreme Doughnuts, Inc. used a 2000 initial public offering (IPO) to embark on an active exp... more Krispy Kreme Doughnuts, Inc. used a 2000 initial public offering (IPO) to embark on an active expansion and franchise reacquisition program. This case focuses on this high-visibility franchise reacquisition program and several associated and highly controversial accounting issues, and provides an opportunity to examine numerous technical and conceptual issues in a real-world setting. In the case, you will encounter a variety of financial reporting issues—from identification and valuation of uncommon intangible assets in Part 1, to acquisition accounting, purchase-price allocations, contingent consideration, exit costs, executive compensation, and loan impairments in Part 2. The case is appropriate for use in intermediate and advanced accounting courses.

Issues in Accounting Education, 2005

Summer Technology, Inc. (the Company) is a fast-growing high-technology firm and is facing many p... more Summer Technology, Inc. (the Company) is a fast-growing high-technology firm and is facing many pressures, including those related to financial reporting. Financial analysts, however, are optimistic about the future of the Company. The firm is about to report its first annual profit, and the preliminary unreported results are just short of the analysts' consensus annual earnings forecast. This case requires financial analysis to evaluate a number of judgments involved in preparing financial statements and to prepare a recommendation to management with respect to reported earnings per share. The case's learning objectives are: (1) to increase understanding and exposure to the integration of financial reporting decisions with financial statement analysis, (2) to help students understand how business decisions impact reporting, (3) to demonstrate how decisions may be influenced by pressures to manage earnings and produce desirable financial results, and (4) to raise ethical iss...

Issues in Accounting Education, 2009

ABSTRACT: The Roman Holiday Pizza Paradise case provides a setting that requires students to unde... more ABSTRACT: The Roman Holiday Pizza Paradise case provides a setting that requires students to understand and perform procedures related to the audit of a fair value estimate in connection with the impairment of an unusual intangible asset, reacquired franchise rights, in the pizza restaurant industry. The case focuses on one key aspect—auditing fair market values—a concept that is increasing in importance as financial accounting standards evolve toward a fair value basis and one that requires the development of auditor judgment. Planning activities as well as performance of year-end auditing procedures are included in this self-contained module that incorporates client interaction and obtained external evidence.

Issues in Accounting Education, 2008

Anticipated purchase of oil structured as forecasted transaction Cash Flow Yes Yes Memo Anticipat... more Anticipated purchase of oil structured as forecasted transaction Cash Flow Yes Yes Memo Anticipated purchase of oil structured as a firm commitment Fair Value Yes Yes Memo Part B Price-Decreasing Anticipated purchase of oil structured as forecasted transaction Cash Flow Yes Yes Memo Anticipated purchase of oil structured as a firm commitment Fair Value Yes Yes Memo Overview Warfield Company is considering hedging the risk associated with (1) an available-forsale (AFS) security portfolio and (2) an anticipated oil purchase. The case requires providing Warfield's Board of Directors with the accounting and financial statement impact of the proposed hedges for the two transactions. Both Part A and Part B are set up to compare and contrast the accounting and reporting differences of a cash flow versus a fair value hedge under Statement of Financial Accounting Standards No. 133, Accounting for Derivatives Instruments and Hedging Activities (SFAS No. 133). Each part takes one set of circumstances and explains both a cash flow and fair value hedge. Part A of this case demonstrates the hedge accounting for the hedge of a recognized asset: an AFS security portfolio. Management can designate the hedged risk to be the risk associated with cash flows or the fair value of the AFS securities. This part requires students to complete journal entries for the hedge of the cash flows and the fair value of the security portfolio and provides students with a mechanical exercise to understand hedge accounting. In addition to completing the journal entries, students are asked to summarize the financial statement impact of each hedge. Completion of the summary helps the students to ''see'' the hedge. Students are then asked to evaluate the two hedge scenarios as preparation for class discussion. Part B illustrates the hedge of a forecasted transaction (a cash flow hedge) and the hedge of a firm commitment (a fair value hedge). This part requires the completion of the journal entries for each hedge structure and summary of the financial statement impact. This part also provides an opportunity for students to see what happens in different pricing scenarios. Students are asked to complete a memo to the Board of Directors summarizing their understanding of the transaction structures and related hedge accounting. Students are also asked to discuss the circumstances in which one structure may be preferred over the other.

Contemporary Accounting Research, 2002

This paper provides evidence that regulatory contracts affect firms' accounting choices and risk-... more This paper provides evidence that regulatory contracts affect firms' accounting choices and risk-management decisions. Specifically, we investigate whether an exogenous shock to regulatory risk induced by Statement of Financial Accounting Standards No. 115 , "Accounting for Certain Investments in Debt and Equity Securities" (SFAS 1993), encouraged U.S. banks to deviate from portfolio and risk benchmarks when they adopted the standard. Because we cannot observe relevant benchmarks, we model portfolio and risk decisions as functions of macroeconomic and firm-specific factors using data from a period when regulatory capital was immune to SFAS No. 115 accounting. We examine a sample of 230 publicly traded banks and find that (1) irrespective of adoption timing, banks classified too few securities available for sale (AFS) relative to estimated benchmarks; (2) weaker banks that adopted the standard early classified far more securities as AFS relative to benchmarks; (3) banks altered the size of their securities portfolios along with the levels of interest-rate risk and credit risk as regulatory capital decreased; and (4) the level of interest-rate risk on banks' loan portfolios increased at the time of SFAS No. 115 adoption. We also explore the 1995 Financial Accounting Standards Board (FASB) amnesty when firms could "readopt" SFAS No. 115. We find that banks used the 1995 FASB amnesty to undo strategic initial SFAS No. 115 adoption decisions. Taken together, our findings suggest that SFAS No. 115 caused some of the accounting and economic consequences predicted by bankers, analysts, and academics. Keywords Economic consequences of financial reporting; Regulatory risk; Risk management; SFAS No. 115 Condensé Les auteurs démontrent que les exigences réglementaires influent sur les choix comptables des sociétés et sur leurs décisions en matière de gestion du risque. Ils se demandent, plus * Accepted by Gord Richardson. Mary Lea McAnally thanks the Center for Business Measurement and Assurance Services at the University of Texas for financial support. This paper has benefited from the substantive comments of two anonymous reviewers,

Patrick E. Hopkins, Chair (principal co-author); Mark Bradshaw (principal co-author); Carolyn Cal... more Patrick E. Hopkins, Chair (principal co-author); Mark Bradshaw (principal co-author); Carolyn Callahan; Jack Ciesielski; Elizabeth Gordon; Leslie Hodder (principal co-author); Mark Kohlbeck; Robert Laux; Sarah McVay; Thomas Stober; Phillip Stocken; and Teri Lombardi ...

Accounting Horizons, 2010

SYNOPSIS: The Financial Reporting Policy Committee of the Financial Accounting and Reporting Sect... more SYNOPSIS: The Financial Reporting Policy Committee of the Financial Accounting and Reporting Section of the American Accounting Association (hereafter, the AAA FRPC or the committee) is charged with responding to discussion memoranda and exposure drafts on financial accounting and reporting issues. This response is to the SEC’s proposed rule, Roadmap for the Potential Use of Financial Statements Prepared in Accordance with International Financial Reporting Standards (IFRS) by U.S. Issuers. Based on a review of the literature, the AAA FRPC has concluded that a move to an international set of financial reporting standards is a desirable goal. We have also concluded that continued convergence of U.S. GAAP with IFRS by joint relations between the International Accounting Standards Board (hereafter, IASB) and the Financial Accounting Standards Board (hereafter, FASB) is preferable to near-term adoption of IFRS as a strategy for convergence.

Accounting Horizons, 2012

SYNOPSISA concurrent session at the 2011 American Accounting Association Annual Meeting featured ... more SYNOPSISA concurrent session at the 2011 American Accounting Association Annual Meeting featured the panel discussion “Financial Market Regulation and Opportunities for Accounting Research.” Structuring their comments around their unique interests and expertise, the panelists covered diverse topics on the regulation of financial markets and financial institutions, including current activities of the primary financial market regulators responsible for accounting and auditing oversight, the Dodd-Frank Wall Street Reform and Consumer Protection Act, and the financial regulation of financial institutions from an economist's perspective. This paper summarizes the panelists' prepared remarks, which were followed by questions and comments from the audience.

Accounting Horizons, 2009

not an asset of the entity, the obligation to deliver common stock is generally interpreted to no... more not an asset of the entity, the obligation to deliver common stock is generally interpreted to not satisfy the definition of a liability contained in the FASB's (1985) Statement of Financial Accounting Concepts (SFAC) No. 6, Elements of Financial Statements. Further, given the perceived arbitrary nature of the actual physical form of settlement (i.e., assets, like cash vs. an entity's own stock) and the complexity of the authoritative literature related to liabilities and equity (e.g., the PV refers to over 60 pieces of authoritative literature within its scope), the PV suggests that the existing accounting guidance causes an unacceptable level of nonsubstantive, financial-reporting-outcome-focused transaction structuring. The PV describes three possible equity-attribute-based approaches (i.e., basic ownership ["BO"], ownership-settlement, ["OS"], and reassessed expected outcomes, ["REO"]) for distinguishing equity instruments from non-equity instruments (these non-equity instruments are usually liabilities, but sometimes are assets). The PV also clearly conveys the FASB's preliminary decision that the BO approach is the most appropriate for identifying the financial instruments that should comprise equity. While all three approaches include instruments that satisfy the definition of a "basic ownership instrument," the BO approach limits reported equity to the residual claim embodied in the (i.e., one) basic ownership instrument. The OS and REO approaches are not quite as restrictive in their definition of equity; for example, the OS approach includes in equity (1) the basic ownership instrument, (2) other instruments that are ownership interests in legal form, and (3) other contracts settled in basic ownership instruments or whose price is determined by prices of basic ownership interests. Appendix E of the PV summarizes the extensive history of the liabilities-and-equity portion of the financial-instruments project. During this time period, the AAA's FASC (1992; 1999; 2001) published three comment letters related to liability-and-equity classification issues, May 29,2008 Page 2 of28 not an asset of the entity, the obligation to deliver common stock is generally interpreted to not satisfy the definition of a liability contained in the F ASB's (1985) Statement of Financial Accounting Concepts (SFAC) No.6, Elements of Financial Statements. Further, given the perceived arbitrary nature of the actual physical form of settlement (i.e., assets, like cash vs. an entity's own stock) and the complexity ofthc authoritative literature related to liabilities and equity (e.g., the PV refers to over 60 pieces of authoritative literature within its scope), the PV suggests that the existing accounting guidance causes an unacceptable level of nonsubstantive, financial-reporting-outcome-focused transaction structuring. The PV describcs three possible equity-attribute-based approaches (i.e., basic ownership ["BO"], ownership-settlement, ["OS"], and reassessed expected outcomes, ["REO"]) for distinguishing equity instruments from non-equity instruments (these non-equity instruments are usually liabilities, but sometimes are assets). The PV also clearly conveys the FASB's preliminary decision that the BO approach is the most appropriate for identifying the financial instruments that should comprise equity. While all three approaches include instruments that satisfy the definition of a "basic ownership instrument," the BO approach limits reported equity to the residual claim embodied in the (i.e., one) basic ownership instrument. The OS and REO approaches are not quite as restrictive in their definition of equity; for example, the OS approach includes in equity (1) the basic ownership instrument, (2) other instruments that are ownership interests in legal form, and (3) other contracts settled in basic ownership instruments or whose price is determined by prices of basic ownership interests. Appendix E of the PV summarizes the extensive history of the liabilities-and-equity portion of the financial-instruments project. During this time period, the AAA's FASC (1992; 1999; 200 I) published three comment lctters related to liability-and-equity classification issues,

Accounting Horizons, 2008

... Patrick E. Hopkins, Chair, Christine A. Botosan, principal co-author, Mark T. Bradshaw, Carol... more ... Patrick E. Hopkins, Chair, Christine A. Botosan, principal co-author, Mark T. Bradshaw, Carolyn M. Callahan, Jack Ciesielski, David B. Farber, Leslie D ... the value relevance, as measured by the association between earnings and stock returns, of US GAAP, IAS, and German GAAP ...

Advances in Accounting, 2008

This research investigates the timeliness of impairment recognition from the initial adoption of ... more This research investigates the timeliness of impairment recognition from the initial adoption of Statement of Financial Accounting Standards no. 142, Goodwill and Other Intangible Assets (SFAS 142). Using a sample of firms reporting goodwill at yearend 2001, we examine the ...