The Sec's Rejection of SFAS No. 19: Tests of Market Price Reversal

17 Pages Posted: 19 Oct 2005

See all articles by Daniel W. Collins

Daniel W. Collins

University of Iowa - Department of Accounting

Michael S. Rozeff

SUNY at Buffalo - Department of Financial & Managerial Economics

William K Salatka

Wilfrid Laurier University - School of Business & Economics

Abstract

Two essentially opposite accounting policy decisions were the FASB proposal to eliminate full cost (FC) accounting and the SEC proposal 13 months later to allow FC accounting while reserve recognition accounting was developed. The SEC's reversal of the FASB decision provides an opportunity to develop additional evidence concerning the market consequences of accounting policy decisions. The authors test whether the SEC proposal had a significant effect on the valuation of FC firms and whether its pricing effect was opposite to that observed at the time of the FASB proposal. A generalized least-squares procedure that takes account of contemporaneous correlation in abnormal return data is employed. The procedure and tests are completely general and appropriate for investigating the market effects of a wide variety of accounting policy decisions in which cross-sectional correlation of the data is a problem. Evidence is presented that the FC firms had significantly higher returns in the SEC period than the successful efforts firms. Furthermore, within the FC sample, a negative relationship is found between the abnormal returns of individual firms at the times of the FASB and SEC proposals.

Keywords: full cost accounting, SFAS 19, oil and gas accounting

JEL Classification: G14

Suggested Citation

Collins, Daniel W. and Rozeff, Michael S. and Salatka, William K, The Sec's Rejection of SFAS No. 19: Tests of Market Price Reversal. The Accounting Review, Vol. 57, No. 1, pp. 1-17, January 1982. Available at SSRN: https://ssrn.com/abstract=820045

Daniel W. Collins (Contact Author)

University of Iowa - Department of Accounting ( email )

108 Pappajohn Business Building
Iowa City, IA 52242-1000
United States
319-335-0912 (Phone)
319-335-1956 (Fax)

Michael S. Rozeff

SUNY at Buffalo - Department of Financial & Managerial Economics ( email )

Buffalo, NY 14260
United States

William K Salatka

Wilfrid Laurier University - School of Business & Economics ( email )

Waterloo, Ontario N2L 3C5
Canada

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