Share Repurchases: Accounting and Disclosure Improvements

• In Event: Financial Accounting and Reporting: Corporate Social Responsiblity & Disclosures

Abstract

Share repurchase is a flexible capital management tool for which the accounting treatment is straightforward: reduce equity directly or through the use of treasury stock as a contra-equity account. Although the accounting process is not complex, the stunning size of share repurchases has led to some distortion of the normal relationship between assets, liabilities, and equity on the balance sheet and creates a non-operating increase in earnings per share. Data for the Dow Jones Industrial Average companies for fiscal 2019 is used to tabulate the impact of stock buybacks on financial reporting for the blue-chip segment of the U.S. market. Exploring the accounting issues related to share repurchases highlights the opportunity for additional disclosures which would not only provide important information to financial statement users, but which would also address concerns related to share repurchase programs. The need for improved financial reporting of stock buybacks has not been addressed well, yet the issue is pertinent to capital managers, financial statement users, and preparers alike.

Authors

• Bradley Shurley, University of Central Arkansas

• Karen Marie Oxner, University of Central Arkansas