Transition to New Accounting Rules: The Case of FAS 87

The purpose of this article is to examine two aspects of the adoption of FAS 87 "Employers Accounting for Pensions". First, what effect does FAS 87 have on the financial results reported by adopting firms. Second, are there differences in the characteristics of firms that early-adopted FAS 87 in 1985 and 1986 versus those that adopted when FAS 87 became required in 1987. The results of this article have important implications for statement users as well as for the FASB as it considers appropriate transition rules in future FASB pronouncements. The FASB's stated reason for a long transition period was to allow firms to renegotiate legal contracts and debt covenant restrictions. Presumably, it was intended to allow firms a longer time period to make the necessary changes in procedures in light of the complexity of FAS 87.