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

Widely acknowledged as one of the most controversial standards in governmental accounting, Governmental Accounting Standards Board (GASB) Statements 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. Although 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, although 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 that lower reported liabilities after 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.