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University of Arkansas, Fayetteville ScholarWorks@UARK Theses and Dissertations 12-1992 Lobbying Activity in the Standards Setting Process: FASB Statement on Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other than Pensions" Christine Schalow University of Arkansas, Fayetteville Follow this and additional works at: https://scholarworks.uark.edu/etd Part of the Accounting Commons, Corporate Finance Commons, and the Finance and Financial Management Commons Recommended Citation Schalow, Christine, "Lobbying Activity in the Standards Setting Process: FASB Statement on Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other than Pensions"" (1992). Theses and Dissertations. 3014. https://scholarworks.uark.edu/etd/3014 This Dissertation is brought to you for free and open access by ScholarWorks@UARK. It has been accepted for inclusion in Theses and Dissertations by an authorized administrator of ScholarWorks@UARK. For more information, please contact scholar@uark.edu, ccmiddle@uark.edu. LOBBYING ACTIVITY IN THE STANDARDS SETTING PROCESS: FASB STATEMENT ON FINANCIAL ACCOUNTING STANDARDS NO. 106, "EMPLOYERS' ACCOUNTING FOR POSTRETIREMENT BENEFITS OTHER THAN PENSIONS" R eproduced w ith perm ission o f the co p yrig h t ow ner. F urthe r rep rod uction prohibited w ith o u t perm ission. LOBBYING ACTIVITY IN THE STANDARDS SETTING PROCESS: FASB STATEMENT ON FINANCIAL ACCOUNTING STANDARDS NO. 106, "EMPLOYERS' ACCOUNTING FOR POSTRETIREMENT BENEFITS OTHER THAN PENSIONS" A dissertation submitted in partial fulfillment of tbe requirements for the degree of Doctor of Philosophy By Christine Marie Schalow, B.S., M.S. University of Wisconsin at Green Bay, 1985 St. Cloud state University, 1987 December, 1992 university of Arkansas R e pro duce d w ith perm issio n o f the co p yrig h t ow ner. F urthe r rep rod uction prohibited w ith o u t perm ission. TABLE OF CONTENTS Chapter 1: Overview of the Study Introduction.............................. 1 Purpose of the Study....................... 2 The Accounting Standards Setting Process......4 Employers' Accounting for Postretirement Benefits Other Than Pensions........... 10 Contributions of the Study................. 14 Organization of the Study.................. 16 Chapter 2: Review of the Literature Introduction..............................17 Background............................... 18 Position Choice Research................... 18 Lobbying Participation Choice Research.......21 Summary.................................. 26 Chapter 3: Research Methodology Introduction.............................. 28 Development of the Position Choice Hypotheses........................... 29 Development of the Lobbying Participation Choice Hypotheses..................... 34 Population, Target Population, and Sample of Firms.......................36 Development of the Research Instrument........................... 39 Survey...............................40 Statistical Methodology.................... 41 Dependent Variables................... 41 iii R eproduced w ith perm ission o f the cop yrig ht ow ner. F urthe r rep rod uction prohibited w ith o u t perm ission. Independent Variables................. 42 Descriptive Statistics and Univariate Statistical Tests................ 44 Logistic Regression Analysis........... 45 Assumptions of the Logistic Regression Model......... 47 Interpretation of Logistic Regression Results....... 49 Summary.................................. 51 Chapter 4: Results of the Study Introduction..............................52 Results of the Survey......................52 Tests for Survey Nonresponse Bias...... 52 Other Survey Results.................. 57 Summary Statistics.................... 59 Descriptive Statistics and Univariate Tests...62 Assessment of Model Assumptions............. 62 Results of the Logistic Regression Procedure............................ 65 The Position Choice Model: Industrial Companies.................. 67 Firm Size Hypothesis.................. 67 Impact on Financial Statement Hypothesis.......................69 Leverage Position Hypothesis........... 70 The Position Choice Model: Utility Companies..................... 71 Summary: The Position Choice Model.......... 73 The Lobbying Participation Choice Model: Industrial Companies.................. 74 iv R epro duce d w ith perm ission o f the cop yrig ht ow ner. F urthe r rep rod uction prohibited w ith o u t perm ission. Firm Size Hypothesis.................. 74 Impact on Financial Statement Hypothesis.......................76 Leverage Position Hypothesis........... 77 The Lobbying Participation Choice Model: Utility Companies..................... 77 Summary: The Lobbying Participation Choice Model......................... 79 Synopsis................................. 80 Chapter 5: Summary, Conclusions, and Recommendations Introduction......... 82 Summary of the Study.......................82 Conclusions of the Study................... 85 Conclusions of the Position Choice Hypotheses................ 86 Conclusions of the Lobbying ParticipationChoice Hypotheses 88 Synopsis............................. 89 Limitations of the Study................... 90 Recommendations for Future Research......... 91 Bibliography.............................. 93 Appendix A ............................... .99 Appendix B ............................... 107 Appendix C............................... 115 Appendix D ............................... 119 v R eproduced w ith perm ission o f the co p yrig h t ow ner. F urthe r rep rod uction prohibited w ith o u t perm ission. CHAPTER 1 OVERVIEW OF THE STUDY INTRODUCTION Arthur R. Wyatt, a former member of the Financial Accounting Standards Board (FASB), stated (1977) that the FASB should be more aware of the economic consequences of proposed accounting standards so it can be prepared to meet opposition. Economic consequences arise from contracting and monitoring costs associated with contractual agreements (e.g., lending agreements) and political costs (e.g., taxation, regulation, and antitrust legislation) (Watts and Zimmerman, 1986). The FASB must anticipate concerns of its constituents about the economic consequences of accounting changes if it expects to build support for these changes (Saemann, 1987). Recently, the FASB has been further criticized by various sources concerning the standards and the standards setting process (Chaney and Jeter, 1989; and Ihlanfeldt, 1991). There has been dissension over the economic consequences of several recent FASB exposure drafts and related standards. The FASB received many objections over the absence of practical considerations in FASB Statement No. 87, "Employers' Accounting for Pensions" (Wyatt, 1990). A related topic, "Employers' Accounting for Postretirement Benefits Other Than Pensions," (OPEB) Statement No. 106 1 R eproduced w ith perm ission o f the cop yrig ht ow ner. F urthe r rep rod uction prohibited w ith o u t perm ission. released in December of 1990, received much criticism during the comment period of the related exposure draft (FASB, 1990). PURPOSE OF THE STUDY The purpose of this study is to explain and classify the behavior of corporate managers1 in the accounting standards setting process as it related to OPEB in order to provide insight for developing a more effective process. This study examined two decisions made by management: (1) the decision whether or not to participate in lobbying activities during the comment period of the OPEB exposure draft; and (2) the position taken on the OPEB exposure draft. This study compared the results of surveys of two groups of corporate representatives— those who filed written comments with the FASB on its exposure draft, "Employers' Accounting for Postretirement Benefits Other Than Pensions," and a sample of corporate representatives who did not file comments on that exposure draft. The sample of nonfilers was selected from corporations that provide postretirement benefits other than pensions and are in industry categories similar to corporations whose representatives filed comment letters with the FASB. The 1 In this study corporate managers are assumed to express the position of their employers in regard to proposed financial reporting standards. 2 R e produced w ith perm ission o f the cop yrig ht ow ner. F urthe r rep rod uction prohibited w ith o u t perm ission. results of the surveys were analyzed in an attempt to determine the reasons why the filers decided to lobby and the nonfilers decided not to lobby. The survey of nonfilers requested information as to the corporate position on the OPEB exposure draft; the position of filers was determined from their comment letters. Differences in the position taken and differences in the decision to lobby between these two groups were then analyzed. Knowledge about the characteristics of lobbyists2 in comparison with characteristics of nonlobbyists is intended to provide the FASB with information useful for increasing the participation in the accounting standards setting process. Corporate characteristics (such as firm size, leverage position, accounting method used for OPEB costs, and maturity of workforce) of firms whose representatives submitted comment letters to the FASB on OPEB were compared to the same corporate characteristics of firms whose representatives did not submit such letters. The remainder of this chapter describes the accounting standards setting process, presents an overview of the OPEB issue, and identifies the contributions of this study. 2 The terms "lobbyists" and "filers" are used interchangeably throughout this paper. 3 R epro duce d w ith perm ission o f the co p yrig h t ow ner. F urthe r rep rod uction pro hibited w ith o u t perm ission. THE ACCOUNTING STANDARDS SETTING PROCESS The Financial Accounting Standards Board is the standards setting agency for business and nongovernmental not-for-profit organizations. Although the FASB is not a government agency, much of its authority depends on the support of governmental bodies, such as the Securities and Exchange Commission. Private sector support for the FASB's accounting standards has come from the American Institute of Certified Public Accountants (AICPA). The AICPA's Code of Professional Ethics Rule 203 prohibits an auditor from stating that a client's financial statements are prepared in accordance with generally accepted accounting principles (GAAP) when they do not comply with FASB pronouncements in all material respects, since the FASB must rely on voluntary compliance rather than legislated compliance, it must operate in an environment characterized by an open due process system. The FASB established formal communication channels as part of its due process procedures to allow constituents to participate in the standards setting process. Kelly-Newton (1980) stated that while the due process procedures allow for considerable input to the policy maker of the reactions of its constituents, it is important that these opinions are seen as substantively impacting the final standards in order to increase public acceptance of the FASB. 4 R e produced w ith perm ission o f the cop yrig ht ow ner. F urthe r rep rod uction prohibited w ith o u t perm ission.