Keywords

public pension accounting, governmental accounting standards, pension liabilities, financial reporting transparency, preparer vs. user interests

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.

Original Publication Citation

Allen, A., Petacchi, R., 2022 Preparer Opposition and Strategic Implementation of Governmental Accounting Standards: Evidence from Public Pension Accounting Reform. Management Science 69(7), 4259-4282

Document Type

Peer-Reviewed Article

Publication Date

2022

Publisher

Management Science

Language

English

College

Marriott School of Business

Department

Accountancy

University Standing at Time of Publication

Associate Professor

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