ABNORMAL FLUCTUATION MEANS MORE THAN WHAT YOU THINK: A COMMENTARY ON FOSTER AND BLUM’S “MANUFACTURERS’ REPORTING OF ABNORMAL EXCESS CAPACITY COSTS”

Abstract

The purpose of this commentary is to present various perspectives on the contribution of Foster & Blum’s recent article, “Manufacturers’ Reporting of Abnormal Excess Capacity Costs: Evidence from COVID-19 Disruption and Suggestions for the Future” (2022). Foster & Blum’s paper signifies that many manufacturers lack direct disclosures on “abnormal excess capacity costs (AECC hereafter)” indicating noncompliance with SFAS 151. The authors suggest that regulatory entities require more direct disclosure about AECC. This disclosure can improve information quality by enhancing information users’ understanding of the impact of production fluctuations. The paper highlights a theoretical link between AECC and Real Earning Management (REM).