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Chris Gash

Booth Helps Shape US Accounting Standards

A recent meeting of minds in the scenic beach town of Norwalk, Connecticut, may boost the future value of your investment portfolio. And Chicago Booth’s formidable accounting faculty helped bring it about.

Booth’s Chookaszian Accounting Research Center and the Financial Accounting Standards Board, which sets financial accounting and reporting standards for enterprises that follow generally accepted accounting principles, cohosted a research symposium in April at FASB headquarters. Participants included about 100 scholars, regulators, FASB standard setters, and accounting practitioners.

Typically, researchers examine the effects of accounting standards after they have been adopted. FASB’s collaboration with CARC is designed to encourage scholars to study important accounting issues in parallel with FASB’s own research efforts, says Michael Minnis, the Fuji Bank and Heller Professor of Accounting, deputy dean for faculty, and former executive director of CARC.

The implications are huge: all publicly traded businesses in the United States follow GAAP, as do the majority of privately owned and nonprofit companies.

“We are the only academic institution with this kind of relationship with FASB,” says Minnis of the event, the first of three annual symposia intended to address current issues facing the accounting profession. “It is an example of how Chicago Booth is reaching out to regulators, standard setters, and practitioners to connect research with practice.”

The April symposium tackled a thorny issue that US accounting standard setters are grappling with: how businesses should account for intangible assets such as spending on research and development.

Across the US economy, intellectual property and other forms of intangible assets add up to trillions of dollars in value. But current accounting rules may underweight them, reducing the value of thousands of businesses.

“Intangible assets are one of the most difficult areas of accounting for developing strong rules that generate rational information,” says Dennis Chookaszian, ’68, adjunct professor of strategic management and former CEO of Chicago-based financial giant CNA Insurance.

Chookaszian delivered a keynote talk the evening before the symposium. He says he and his wife, Karen Chookaszian, intended their endowment of CARC to enable the center to broaden its already considerable influence. The research center has long published the prestigious Journal of Accounting Research, consistently ranked as one of the top accounting research journals in the world. (To read more about Chookaszian’s contributions to making Booth a preeminent accounting research institution, read “Professor Ray Ball Honored with Conference Renaming.”)

“We are the only academic institution with this kind of relationship with FASB. It is an example of how Chicago Booth is reaching out to regulators, standard setters, and practitioners to connect research with practice.”

— Michael Minnis

One goal of the daylong event was to generate academic research on how business accounting should treat R&D and goodwill, or the value of a business in excess of its physical assets. The sponsors received 35 academic papers on that topic, Minnis says.

Another goal was to dig into the subject in panel discussions, such as one Minnis moderated on the differences between corporate and government accounting for R&D. Panelists included Chicago Booth microeconomist Chad Syverson, the George C. Tiao Distinguished Service Professor of Economics, and the Bureau of Economic Analysis’s David Wasshausen.

Under GAAP, businesses simply charge off R&D spending against current earnings because it doesn’t create a physical asset. But since 2013, economists at the Bureau of Economic Analysis calculating GDP have been counting R&D as a capital investment.

The contrasting treatment reflects different goals as economists seek to measure productivity in the economy and corporate accountants seek to ensure that the books provide a fair evaluation of a business, Minnis says.

“R&D spending really does create expected future value,” Minnis says. “So are we missing something by expensing it and not treating it as an asset in financial reporting?”

As for goodwill, it’s one of the biggest intangible assets on most balance sheets. “There’s always tension around how to value it,” Minnis says. “Does it wear out? Do you amortize it?”

The symposium didn’t resolve those questions, but that wasn’t the point, he says. “The goal was to get minds and people together. We may not know the outcomes for a year or two or three.”

Meanwhile, CARC and FASB are already working on next year’s symposium, which will focus on the statement of cash flows. Although cash flows play a huge role in how markets value businesses, the subject is underdeveloped in accounting, Minnis says.

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