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

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  • 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
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    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.

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