Articlegreen2011

Special Items: A Descriptive Analysis

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Auditing, Earnings Management, Governance Accounting Theory and Financial Reporting Corporate Governance and Financial Management

Abstract

SYNOPSIS We provide a comprehensive analysis of special items and the characteristics of the firms that recognize them. Our analysis reveals that the temporal frequency, magnitude, and persistence of special items has increased significantly in the last 30 years, and that such increases are primarily driven by negative special items. More recently, however, our evidence is consistent with both a decline in frequency and magnitude of negative special items. On the other hand, we find that the frequency of reporting of positive special items, which remained relatively constant through 2002, has increased in more recent years. We also find strong evidence that subsequent special item reporting is an increasing function of the frequency of “prior” special item reporting. Using a random subsample of firms reporting special items, we document that 22 percent of the amounts reported in Compustat do not reconcile with the amounts reported on the firms' actual financial statements. Our comprehensive analysis should be of interest to regulators, academics, and managers interested in the implications of special items on firm-related consequences such as future earnings and firm value. Our examination can also serve as a catalyst for researchers interested in extending this important area of inquiry.

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References

2008Real and Accrual-Based Earnings Management in the Pre- and Post-Sarbanes-Oxley Periods 2008Financial Accounting Standards Board (FASB)2006Earnings Management Using Classification Shifting: An Examination of Core Earnings and Special Items 2002GAAP versus The Street: An Empirical Assessment of Two Alternative Definitions of Earnings 1996Causes and Effects of Discretionary Asset Write-Offs 1988Write-Offs As Accounting Procedures to Manage Perceptions 1996Repeated Accounting Write-Offs and the Information Content of Earnings 1998The relation between nonrecurring accounting transactions and CEO cash compensation.

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2021Empirical Goodwill Research: Insights, Issues, and Implications for Standard Setting and Future Research 2012Negative Special Items and Future Earnings: Expense Transfer or Real Improvements?2013Earnings sustainability, economic conditions and the value relevance of accounting information 2016Earnings management in India: Managers’ fixation on operating profits 2017Do financially distressed firms misclassify core expenses?

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