Preparer Opposition and Strategic Implementation of Governmental Accounting Standards: Evidence from Public Pension Accounting Reform

Management Science, Forthcoming

47 Pages Posted: 4 Dec 2014 Last revised: 20 May 2022

See all articles by Abigail M. Allen

Abigail M. Allen

Brigham Young University - Marriott School

Reining Petacchi

Georgetown University - Department of Accounting and Business Law

Date Written: February 1, 2022

Abstract

Widely acknowledged as one of the most controversial standards in governmental accounting, GASB 67/68 radically altered both the recognition and measurement for defined benefit public pensions. The standards require the recognition of previously only disclosed unfunded pension liabilities and increase the magnitude of reported pension liabilities by requiring the partial incorporation of a market-based discount rate. While the recognition proposal was unaltered from its initial conception to the final standards, the discount rate proposal was significantly attenuated after the initial proposal met with unanimous preparer opposition.
Accordingly, we examine what incentives drive preparer lobbying positions, whether such lobbying is aligned with user interests, and how such lobbying affects ex post implementation of the final standard. Our results suggest a misalignment between preparer lobbying and a user interest perspective. In particular, while state opposition for liability-increasing proposals is positively associated with expected financial statement impact, economic constraints, and political ramifications, user lobbying exhibits the opposite relationship, suggesting that users demand greater transparency in the states most likely to eschew it. We further find that state governments consistently opposed to the market-based discount rate are more likely to maintain status quo higher discount rates which lower reported liabilities post the implementation of GASB 67/68. Examining the mechanism, we find that opposing states avoid the market-rate trigger by
increasing required contributions from employees rather than by increasing government funding or
implementing benefit cuts. The evidence taken together contributes to our understanding of the
development and implementation of the landmark GASB 67/68 standards.

Keywords: Public Pension, GASB, Standard Setting, Lobbying, Government

JEL Classification: M41, M48, H75

Suggested Citation

Allen, Abigail M. and Petacchi, Reining, Preparer Opposition and Strategic Implementation of Governmental Accounting Standards: Evidence from Public Pension Accounting Reform (February 1, 2022). Management Science, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2533492 or http://dx.doi.org/10.2139/ssrn.2533492

Abigail M. Allen (Contact Author)

Brigham Young University - Marriott School ( email )

Provo, UT
United States

Reining Petacchi

Georgetown University - Department of Accounting and Business Law ( email )

McDonough School of Business
Washington, DC 20057
United States

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