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Kelley School of Business

Jeni Donlon
Kelley School of Business

Last modified: Wednesday, August 10, 2011

IU Kelley School of Business professor honored by the American Accounting Association

Aug. 10, 2011

BLOOMINGTON, Ind. -- Patrick Hopkins, professor of accounting at Indiana University's Kelley School of Business, is being honored for research that ultimately made it harder for companies to hide controversial accounting practices that make their earnings look healthier than they are.

Patrick Hopkins

Patrick Hopkins

Print-Quality Photo

The Distinguished Contributions to Accounting Literature Award was presented Tuesday (Aug. 9) at the American Accounting Association's annual meeting in Denver.

Hopkins, who is the Deloitte Foundation Accounting Faculty Fellow at the Kelley School, shares the award with co-author Eric Hirst, the John Arch White Professor of Business at The University of Texas at Austin's McCombs School of Business. Hopkins earned his doctorate at UT Austin.

Their research, which has been cited heavily since it was published in 1998, shows how even security analysts were fooled by companies who buried deep in their reports certain creative accounting practices that made their bottom line look good.

Until recently, financial reporting standards required "other comprehensive income" to be reported, but did not specify where. So a company could strategically sell assets with gains in value in time to meet earnings expectations, but hide in an obscure section of the financial report that the company's remaining assets have a loss in value, which reduces comprehensive income.

Although common, "earnings management" is controversial because it could deceive investors about a company's financial health, which affects stock prices.

"I am extremely proud that this research was recognized for its impact on practice and for the many other research studies it inspired," Hopkins said. "The study had a very simple message and challenged the widely held belief that describing transactions in the footnotes is a substitute for clearly recognizing transactions in the financial statements."

The FASB changed the rules in June, requiring comprehensive income to be featured more prominently in financial statements.

"Professor Hopkins' paper is an outstanding illustration of the benefits of academic research to accounting practice," said Laureen Maines, chair of the accounting department at the Kelley School. "This paper presented the first evidence that companies' discretion over comprehensive income reporting affects analysts' judgments and stimulated a significant body of research that provided valuable evidence to the Financial Accounting Standards Board."

The AAA award was created in 2010 and recognizes research of "exceptional merit" published in the last five to 15 years, said Kevin Stocks, AAA president. Criteria include uniqueness and magnitude of the contribution to accounting education, practice or future accounting research.

Hopkins, along with Hirst, won a Best Paper Award from the AAA in 1999. He has been on the faculty at the Kelley School of Business since 1995. Among his research interests are professional judgment and decision making, human information processing, and effects of accounting and auditing.