IDEAS home Printed from https://ideas.repec.org/a/bla/jbfnac/v31y2004i3-4p475-504.html
   My bibliography  Save this article

A Comparative Analysis of Auditor, Manager and Financial Analyst Interpretations of SFAS 5 Disclosure Guidelines

Author

Listed:
  • Joseph Aharony
  • Amihud Dotan

Abstract

This study examines empirically whether financial analysts (users), as well as managers (preparers) and external auditors ascribe different interpretations to the SFAS 5 disclosure criteria. We find: (1) financial analysts are, on average, more conservative than managers and auditors in their numerical interpretations of both the ‘remote’ and ‘probable’ verbal phrases; (2) managers and auditors share very similar numerical interpretations of these verbal phrases; (3) audit partners’ numerical interpretations of the ‘remote’ region are between those of managers and users, whereas audit managers align their numerical interpretations with those of managers. One danger is that preparers of financial statements may omit loss contingency information that users consider valuable.

Suggested Citation

  • Joseph Aharony & Amihud Dotan, 2004. "A Comparative Analysis of Auditor, Manager and Financial Analyst Interpretations of SFAS 5 Disclosure Guidelines," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 31(3‐4), pages 475-504, April.
    • Handle: RePEc:bla:jbfnac:v:31:y:2004:i:3-4:p:475-504
    DOI: 10.1111/j.0306-686X.2004.00547.x
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/j.0306-686X.2004.00547.x
    Download Restriction: no
    File URL: https://libkey.io/10.1111/j.0306-686X.2004.00547.x?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Dye, Ronald A., 1991. "Informationally motivated auditor replacement," Journal of Accounting and Economics, Elsevier, vol. 14(4), pages 347-374, December.
    2. DeFond, Mark L. & Jiambalvo, James, 1994. "Debt covenant violation and manipulation of accruals," Journal of Accounting and Economics, Elsevier, vol. 17(1-2), pages 145-176, January.
    3. DeAngelo, Linda Elizabeth, 1988. "Managerial competition, information costs, and corporate governance : The use of accounting performance measures in proxy contests," Journal of Accounting and Economics, Elsevier, vol. 10(1), pages 3-36, January.
    4. Schultz, Jj & Reckers, Pmj, 1981. "The Impact Of Group Processing On Selected Audit Disclosure Decisions," Journal of Accounting Research, Wiley Blackwell, vol. 19(2), pages 482-501.
    5. Kenneth E. Harrison & Lawrence A. Tomassini, 1989. "Judging the probability of a contingent loss: An empirical study," Contemporary Accounting Research, John Wiley & Sons, vol. 5(2), pages 642-648, March.
    6. Salterio, S. & Koonce, L., 1997. "The persuasiveness of audit evidence: The case of accounting policy decisions," Accounting, Organizations and Society, Elsevier, vol. 22(6), pages 573-587, August.
    7. McNichols, Maureen F., 2000. "Research design issues in earnings management studies," Journal of Accounting and Public Policy, Elsevier, vol. 19(4-5), pages 313-345.
    8. Jones, Jj, 1991. "Earnings Management During Import Relief Investigations," Journal of Accounting Research, Wiley Blackwell, vol. 29(2), pages 193-228.
    9. K. Raghunandan & Richard A. Grimlund & Albert Schepanski, 1991. "Auditor evaluation of loss contingencies," Contemporary Accounting Research, John Wiley & Sons, vol. 7(2), pages 549-569, March.
    10. Healy, Paul M., 1985. "The effect of bonus schemes on accounting decisions," Journal of Accounting and Economics, Elsevier, vol. 7(1-3), pages 85-107, April.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Siti Mariana Taliyang & Safrul Izani Mohd Salleh & Rosmaria Jaffar Harun, 2013. "Accounting Convergence: Issues On Translation & Interpretation: Evidence In Malaysia," Far East Journal of Psychology and Business, Far East Research Centre, vol. 10(1), pages 1-8, March.
    2. Nancy Segura, 2008. "Contribution à la connaissance de la production de l'information financière : Le cas des provisions pour litiges," Post-Print halshs-00525982, HAL.
    3. Katarzyna Kolesnik & Sylwia Silska-Gembka & Jerzy Gierusz, 2019. "The Interpretation of the Verbal Probability Expressions Used in The IFRS – The Differences Observed Between Polish and British Accounting Professionals," Journal of Accounting and Management Information Systems, Faculty of Accounting and Management Information Systems, The Bucharest University of Economic Studies, vol. 18(1), pages 25-49, March.
    4. Marc Badia & Miguel Duro & Bjorn N. Jorgensen & Gaizka Ormazabal & Hans B. Christensen, 2020. "The Informational Effects of Tightening Oil and Gas Disclosure Rules," Contemporary Accounting Research, John Wiley & Sons, vol. 37(3), pages 1720-1755, September.
    5. Li, Chan & Raman, K.K. & Sun, Lili & Wu, Da, 2017. "The effect of ambiguity in an auditing standard on auditor independence: Evidence from nonaudit fees and SOX 404 opinions," Journal of Contemporary Accounting and Economics, Elsevier, vol. 13(1), pages 37-51.
    6. Ning Du & Kevin Stevens, 2011. "Numeric-to-verbal translation of probability expressions in SFAS 5," Managerial Auditing Journal, Emerald Group Publishing, vol. 26(3), pages 248-262, March.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Zhijun Lin & Ming Liu & Carlos Noronha, 2016. "The Impact of Corporate Governance on Informative Earnings Management in the Chinese Market," Abacus, Accounting Foundation, University of Sydney, vol. 52(3), pages 568-609, September.
    2. Dechow, Patricia & Ge, Weili & Schrand, Catherine, 2010. "Understanding earnings quality: A review of the proxies, their determinants and their consequences," Journal of Accounting and Economics, Elsevier, vol. 50(2-3), pages 344-401, December.
    3. Araceli Mora Enguidanos & Juan Manuel García Lara & Beatriz García Osma & Ana Gisbert Clemente, 2004. "La Comparabilidad De La Información Contable En Europa: Efectos De La Manipulación Contable Sobre El Nivel De Conservadurismo," Working Papers. Serie EC 2004-14, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
    4. Isabel‐Maria García‐Sánchez & Nazim Hussain & Sana Akbar Khan & Jennifer Martínez‐Ferrero, 2020. "Managerial entrenchment, corporate social responsibility, and earnings management," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 27(4), pages 1818-1833, July.
    5. Muhammad Kaleem Khan & Yixuan Qin & Chengsi Zhang, 2022. "Financial structure and earnings manipulation activities in China," The World Economy, Wiley Blackwell, vol. 45(8), pages 2593-2621, August.
    6. Thomas Dilger & Sabine Graschitz, 2015. "Influencing Factors on Earnings Management, Empirical Evidence from Listed German and Austrian Companies," International Journal of Business and Economic Sciences Applied Research (IJBESAR), International Hellenic University (IHU), Kavala Campus, Greece (formerly Eastern Macedonia and Thrace Institute of Technology - EMaTTech), vol. 8(2), pages 69-86, October.
    7. Patricia M. Dechow & Amy P. Hutton & Jung Hoon Kim & Richard G. Sloan, 2012. "Detecting Earnings Management: A New Approach," Journal of Accounting Research, Wiley Blackwell, vol. 50(2), pages 275-334, May.
    8. Connie L. Becker & Mark L. Defond & James Jiambalvo & K.R. Subramanyam, 1998. "The Effect of Audit Quality on Earnings Management," Contemporary Accounting Research, John Wiley & Sons, vol. 15(1), pages 1-24, March.
    9. Shu, Pei-Gi & Chiang, Sue-Jane, 2014. "Firm size, timing, and earnings management of seasoned equity offerings," International Review of Economics & Finance, Elsevier, vol. 29(C), pages 177-194.
    10. Joanna Lizińska & Leszek Czapiewski, 2019. "Is Window-Dressing around Going Public Beneficial? Evidence from Poland," JRFM, MDPI, vol. 12(1), pages 1-16, January.
    11. T.N. Malofeeva, 2018. "The Impact of IFRS Adoption on Earnings Management in Russia," European Research Studies Journal, European Research Studies Journal, vol. 0(2), pages 147-164.
    12. Hervé Stolowy & Gaetan Breton, 2000. "A Framework for the Classification of Accounts Manipulations," Working Papers hal-00597249, HAL.
    13. Jorge Farinha & Luis Filipe Viana, 2006. "Board structure and modified audit opinions: the case of the Portuguese Stock Exchange," CEF.UP Working Papers 0609, Universidade do Porto, Faculdade de Economia do Porto.
    14. Chen, Shaw K. & Lin, Bing-Xuan & Wang, Yaping & Wu, Liansheng, 2010. "The frequency and magnitude of earnings management: Time-series and multi-threshold comparisons," International Review of Economics & Finance, Elsevier, vol. 19(4), pages 671-685, October.
    15. Klein, April, 2002. "Audit committee, board of director characteristics, and earnings management," Journal of Accounting and Economics, Elsevier, vol. 33(3), pages 375-400, August.
    16. Soon Suk Yoon, 2005. "A Comparison of Earnings Management Between KSE Firms and KOSDAQ Firms," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 32(7‐8), pages 1347-1372, September.
    17. Reguera Alvarado, Nuria & Laffarga Briones, Joaquina & de Fuentes Ruiz, Pilar, 2015. "Modelos de gestión de resultados: un estudio transnacional," Revista de Contabilidad - Spanish Accounting Review, Elsevier, vol. 18(1), pages 11-19.
    18. Mughal, Azhar & Tao, Qizhi & Sun, Yicheng & Xiang, Xueman, 2021. "Earnings management at target firms and the acquirers’ performance," International Review of Economics & Finance, Elsevier, vol. 72(C), pages 384-404.
    19. Dauth, Tobias & Pronobis, Paul & Schmid, Stefan, 2017. "Exploring the link between internationalization of top management and accounting quality: The CFO’s international experience matters," International Business Review, Elsevier, vol. 26(1), pages 71-88.
    20. Karen M. Y. Lai & Andriyawan Sasmita & Ferdinand A. Gul & Yee Boon Foo & Marion Hutchinson, 2018. "Busy Auditors, Ethical Behavior, and Discretionary Accruals Quality in Malaysia," Journal of Business Ethics, Springer, vol. 150(4), pages 1187-1198, July.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:jbfnac:v:31:y:2004:i:3-4:p:475-504. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: http://www.blackwellpublishing.com/journal.asp?ref=0306-686X .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.