Setting New Standards Kmart Corporation reported a net loss of $571 million for the fiscal year ended January 31, 1996. In his letter to shareholders, dated March 19, 1996, the chairman, president, and chief executive officer of Kmart stated that Kmart "bit the bullet in 1995 and early 1996 in a number of ways." Kmart disposed of many noncore assets by selling its invest- ments in the Border Group, OfficeMax, The Sports Authority, and Coles Myer and the as- sets of its 860 automotive service centers. Kmart closed 214 underperforming stores and disposed of $700 million in aged and discontinued inventory. The company is continu- ing its efforts to reduce its selling, general and administrative costs. In recent years, numerous other companies have been restructuring, "downsizing," and "rightsizing." Typically, these companies close locations, sell assets, and lay off em- ployees. Companies taking such actions often pay costs to close locations, realize losses on the disposition of assets, and incur severance pay and retraining costs. As the financial environment changes, so do accounting standards. Currently, costs associate with the actions described above are expensed in the year in which the changes .ake place.

Required Write clear, concise answers to the following questions:

1. The actions taken by Kmart are expected to improve its bottom line. If Kmart will benefit from these changes in future years, do you think that the costs associated with these actions should be matched with future years when the benefits will be realized? 2. What could you do to have an accounting standard changed? Choose a position ei- ther for or against changing the way restructuring costs are handled and write a let- ter to the organization that you believe would be most effective in acting on your recommendation.