IDEAS home Printed from https://ideas.repec.org/a/bla/jbfnac/v49y2022i9-10p1457-1488.html
   My bibliography  Save this article

Financial reporting uniformity: Its relation to comparability and its impact on financial statement users

Author

Listed:
  • Marcus L. Caylor
  • Dennis J. Chambers
  • Sunay Mutlu

Abstract

We explore the relation between financial reporting uniformity and comparability. We also examine the effect of uniformity on analyst coverage, analyst forecast accuracy and analyst forecast dispersion. We develop a Compustat‐based financial statement account uniformity measure based on the presentation of common financial statement line items. We define uniformity using a Jaccard similarity index where a firm's non‐missing Compustat data items are compared to a prototypical firm for that industry year. We emphasize the conceptual difference between uniformity and comparability, and our tests do not show a significant association between uniformity and output‐based accounting comparability. However, we find that the association between account uniformity and comparability becomes positive in high research and development firms, while it becomes negative in firms with higher managerial discretion. We explore the association between uniformity and information processing efficiencies, and we show that our uniformity measure is positively associated with analyst coverage. Furthermore, we partition our uniformity measure into separate income statement and balance sheet components. We find that income statement uniformity is associated with higher forecast accuracy and lower forecast dispersion, while balance sheet uniformity is associated with greater analyst coverage. Finally, we provide further support for these findings using an XBRL‐based uniformity measure.

Suggested Citation

  • Marcus L. Caylor & Dennis J. Chambers & Sunay Mutlu, 2022. "Financial reporting uniformity: Its relation to comparability and its impact on financial statement users," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 49(9-10), pages 1457-1488, October.
    • Handle: RePEc:bla:jbfnac:v:49:y:2022:i:9-10:p:1457-1488
    DOI: 10.1111/jbfa.12608
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/jbfa.12608
    Download Restriction: no
    File URL: https://libkey.io/10.1111/jbfa.12608?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. Gus De Franco & S.P. Kothari & Rodrigo S. Verdi, 2011. "The Benefits of Financial Statement Comparability," Journal of Accounting Research, Wiley Blackwell, vol. 49(4), pages 895-931, September.
    2. Gu, Zhaoyang & Chen, Ting, 2004. "Analysts' treatment of nonrecurring items in street earnings," Journal of Accounting and Economics, Elsevier, vol. 38(1), pages 129-170, December.
    3. Jia†Chi Cheng & Ruei†Shian Wu, 2018. "Internal capital market efficiency and the diversification discount: The role of financial statement comparability," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 45(5-6), pages 572-603, May.
    4. Ole‐Kristian Hope, 2003. "Disclosure Practices, Enforcement of Accounting Standards, and Analysts' Forecast Accuracy: An International Study," Journal of Accounting Research, Wiley Blackwell, vol. 41(2), pages 235-272, May.
    5. Ciao‐Wei Chen & Daniel W. Collins & Todd D. Kravet & Richard D. Mergenthaler, 2018. "Financial Statement Comparability and the Efficiency of Acquisition Decisions," Contemporary Accounting Research, John Wiley & Sons, vol. 35(1), pages 164-202, March.
    6. Shuping Chen & Bin Miao & Terry Shevlin, 2015. "A New Measure of Disclosure Quality: The Level of Disaggregation of Accounting Data in Annual Reports," Journal of Accounting Research, Wiley Blackwell, vol. 53(5), pages 1017-1054, December.
    7. Gianfranco Siciliano, 2019. "Has IFRS Enhanced Accounting Uniformity?," Accounting in Europe, Taylor & Francis Journals, vol. 16(3), pages 313-339, September.
    8. Paul Hribar & Daniel W. Collins, 2002. "Errors in Estimating Accruals: Implications for Empirical Research," Journal of Accounting Research, Wiley Blackwell, vol. 40(1), pages 105-134, March.
    9. Cascino, Stefano & Gassen, Joachim, 2015. "What drives the comparability effect of mandatory IFRS adoption?," LSE Research Online Documents on Economics 57682, London School of Economics and Political Science, LSE Library.
    10. DeFond, Mark & Hu, Xuesong & Hung, Mingyi & Li, Siqi, 2011. "The impact of mandatory IFRS adoption on foreign mutual fund ownership: The role of comparability," Journal of Accounting and Economics, Elsevier, vol. 51(3), pages 240-258, April.
    11. Zeff, Stephen A., 2007. "Some obstacles to global financial reporting comparability and convergence at a high level of quality," The British Accounting Review, Elsevier, vol. 39(4), pages 290-302.
    12. Shyam NMI Sunder & Ronald A. Dye, 2001. "Why Not Allow the FASB and IASB Standards to Compete in the U.S.?," Yale School of Management Working Papers ysm192, Yale School of Management.
    13. Beyer, Anne & Cohen, Daniel A. & Lys, Thomas Z. & Walther, Beverly R., 2010. "The financial reporting environment: Review of the recent literature," Journal of Accounting and Economics, Elsevier, vol. 50(2-3), pages 296-343, December.
    14. Elgers, Pieter T. & Lo, May H. & Pfeiffer, Ray Jr., 2003. "Analysts' vs. investors' weightings of accruals in forecasting annual earnings," Journal of Accounting and Public Policy, Elsevier, vol. 22(3), pages 255-280.
    15. Partha S. Mohanram, 2014. "Analysts' Cash Flow Forecasts and the Decline of the Accruals Anomaly," Contemporary Accounting Research, John Wiley & Sons, vol. 31(4), pages 1143-1170, December.
    16. Carmona, Salvador & Trombetta, Marco, 2008. "On the global acceptance of IAS/IFRS accounting standards: The logic and implications of the principles-based system," Journal of Accounting and Public Policy, Elsevier, vol. 27(6), pages 455-461.
    17. Lev, Baruch & Sougiannis, Theodore, 1996. "The capitalization, amortization, and value-relevance of R&D," Journal of Accounting and Economics, Elsevier, vol. 21(1), pages 107-138, February.
    18. Clare Wang, 2014. "Accounting Standards Harmonization and Financial Statement Comparability: Evidence from Transnational Information Transfer," Journal of Accounting Research, Wiley Blackwell, vol. 52(4), pages 955-992, September.
    19. Ross Taplin, 2004. "A unified approach to the measurement of international accounting harmony," Accounting and Business Research, Taylor & Francis Journals, vol. 34(1), pages 57-73.
    20. Jones, Jj, 1991. "Earnings Management During Import Relief Investigations," Journal of Accounting Research, Wiley Blackwell, vol. 29(2), pages 193-228.
    21. Bhushan, Ravi, 1989. "Firm characteristics and analyst following," Journal of Accounting and Economics, Elsevier, vol. 11(2-3), pages 255-274, July.
    22. Hirst, DE & Hopkins, PE, 1998. "Comprehensive income reporting and analysts' valuation judgments," Journal of Accounting Research, Wiley Blackwell, vol. 36, pages 47-75.
    23. Chung, Kun Y. & Park, Taewoo & Ro, Byung T., 1996. "Differential market reactions to accounting changes away from versus towards common accounting practices," Journal of Accounting and Public Policy, Elsevier, vol. 15(1), pages 29-53.
    24. Suresh Radhakrishnan & Shu†Ling Wu, 2014. "Analysts' Cash Flow Forecasts and Accrual Mispricing," Contemporary Accounting Research, John Wiley & Sons, vol. 31(4), pages 1191-1219, December.
    25. Chaney, Paul K. & Hogan, Chris E. & Jeter, Debra C., 1999. "The effect of reporting restructuring charges on analysts' forecast revisions and errors," Journal of Accounting and Economics, Elsevier, vol. 27(3), pages 261-284, July.
    26. John Shon & Susan M. Young, 2011. "Determinants of Analysts’ Dropped Coverage Decision: The Role of Analyst Incentives, Experience, and Accounting Fundamentals," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 38(7-8), pages 861-886, September.
    27. Smith, Clifford Jr. & Warner, Jerold B., 1979. "On financial contracting : An analysis of bond covenants," Journal of Financial Economics, Elsevier, vol. 7(2), pages 117-161, June.
    28. Hopkins, PE, 1996. "The effect of financial statement classification of hybrid financial instruments on financial analysts' stock price judgments," Journal of Accounting Research, Wiley Blackwell, vol. 34, pages 33-50.
    29. Francois Brochet & Alan D. Jagolinzer & Edward J. Riedl, 2013. "Mandatory IFRS Adoption and Financial Statement Comparability," Contemporary Accounting Research, John Wiley & Sons, vol. 30(4), pages 1373-1400, December.
    Full references (including those not matched with items on IDEAS)

    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. Lee, Bryan Byung-Hee & Lee, Jay Junghun, 2024. "Financial statement comparability and analysts’ optimism for accruals," The British Accounting Review, Elsevier, vol. 56(3).
    2. repec:mth:ijafr8:v:8:y:2018:i:3:p:174-211 is not listed on IDEAS
    3. Blankespoor, Elizabeth & deHaan, Ed & Marinovic, Iván, 2020. "Disclosure processing costs, investors’ information choice, and equity market outcomes: A review," Journal of Accounting and Economics, Elsevier, vol. 70(2).
    4. De George, Emmanuel T. & Li, Xi & Shivakumar, Lakshmanan, 2016. "A review of the IFRS adoption literature," LSE Research Online Documents on Economics 67599, London School of Economics and Political Science, LSE Library.
    5. Emmanuel T. De George & Xi Li & Lakshmanan Shivakumar, 2016. "A review of the IFRS adoption literature," Review of Accounting Studies, Springer, vol. 21(3), pages 898-1004, September.
    6. Czerny Małgorzata & Firkowska-Jakobsze Zuzanna & Hońko Stanisław, 2019. "A Comparability of Information in the Financial Statements of Gaming Companies," Financial Sciences. Nauki o Finansach, Sciendo, vol. 24(4), pages 27-44, December.
    7. Ramnath, Sundaresh & Rock, Steve & Shane, Philip, 2008. "The financial analyst forecasting literature: A taxonomy with suggestions for further research," International Journal of Forecasting, Elsevier, vol. 24(1), pages 34-75.
    8. Fangjun Wang & Zhichao Zhang & Luying Xu, 2020. "Corporate social responsibility and financial statement comparability: Evidence from China," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 27(3), pages 1375-1394, May.
    9. Edmonds, Mark A. & Smith, David B. & Stallings, Matthew A., 2018. "Financial statement comparability and segment disclosure," Research in Accounting Regulation, Elsevier, vol. 30(2), pages 103-111.
    10. Petaibanlue, Jirada & Walker, Martin & Lee, Edward, 2015. "When did analyst forecast accuracy benefit from increased cross-border comparability following IFRS adoption in the EU?," International Review of Financial Analysis, Elsevier, vol. 42(C), pages 278-291.
    11. Biswas, Pallab Kumar & Habib, Ahsan & Ranasinghe, Dinithi, 2022. "Firm life cycle and financial statement comparability," Advances in accounting, Elsevier, vol. 58(C).
    12. Christian Gross, 2016. "The Effect of the German Accounting Law Modernization Act on the Comparability of Private Local GAAP and IFRS Firms," Schmalenbach Business Review, Springer;Schmalenbach-Gesellschaft, vol. 17(3), pages 423-460, December.
    13. Xiaomeng Chen & Meiting Lu & Yaowen Shan & Yizhou Zhang, 2021. "Australian evidence on analysts' cash flow forecasts: issuance, accuracy and usefulness," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 61(1), pages 3-50, March.
    14. Hinson, Lisa & Tucker, Jennifer Wu & Weng, Diana, 2019. "The tradeoff between relevance and comparability in segment reporting," Journal of Accounting Literature, Elsevier, vol. 43(C), pages 70-86.
    15. Wang, Yushi & Feng, Yuan & Zhu, Zhangyao & Liu, Jia & Li, Yubin, 2024. "Financial statement comparability and expected default risk," International Review of Financial Analysis, Elsevier, vol. 95(PA).
    16. Christof Beuselinck & Philip Joos & Inder Khurana & Sofie van Der Meulen, 2017. "Which Analysts Benefited Most from Mandatory IFRS Adoption in Europe?," Post-Print hal-01745251, HAL.
    17. Beyer, Anne & Cohen, Daniel A. & Lys, Thomas Z. & Walther, Beverly R., 2010. "The financial reporting environment: Review of the recent literature," Journal of Accounting and Economics, Elsevier, vol. 50(2-3), pages 296-343, December.
    18. Jong‐Hag Choi & Sunhwa Choi & Linda A. Myers & David Ziebart, 2019. "Financial Statement Comparability and the Informativeness of Stock Prices About Future Earnings," Contemporary Accounting Research, John Wiley & Sons, vol. 36(1), pages 389-417, March.
    19. Caban-Garcia, Maria T. & Choi, Heeick & Kim, Myungsun, 2020. "The effects of operating cash flow disclosure on earnings comparability, analysts' forecasts, and firms’ investment decisions during the Pre-IFRS era," The British Accounting Review, Elsevier, vol. 52(4).
    20. Christian Leuz & Peter D. Wysocki, 2016. "The Economics of Disclosure and Financial Reporting Regulation: Evidence and Suggestions for Future Research," Journal of Accounting Research, Wiley Blackwell, vol. 54(2), pages 525-622, May.
    21. Chen, Anthony & Gong, James (Jianxin) & Lu, Richard (Hung-Yuan), 2020. "The effect of principles-based standards on financial statement comparability: The case of SFAS-142," Advances in accounting, Elsevier, vol. 49(C).

    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:49:y:2022:i:9-10:p:1457-1488. 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.