IDEAS home Printed from https://ideas.repec.org/a/bla/joares/v44y2006i3p533-560.html
   My bibliography  Save this article

Recognition v. Disclosure, Auditor Tolerance for Misstatement, and the Reliability of Stock-Compensation and Lease Information

Author

Listed:
  • ROBERT LIBBY
  • MARK W. NELSON
  • JAMES E. HUNTON

Abstract

We examine whether information in footnotes might lack reliability because auditors permit more misstatement in disclosed, as opposed to recognized, amounts. In both the stock-compensation and lease settings, audit partners require greater correction of misstatements in recognized amounts than in the equivalent disclosed amounts. Debriefing questions indicate that the partners make these decisions knowingly, even though they expect greater client resistance to correcting recognized amounts, because they view recognized amounts as more material. Partners also spend more time on correction decisions for recognized information. While prior literature suggests that amounts are often relegated to footnotes because they are less reliable, our results suggest that the actual choice to disclose versus recognize can also reduce information reliability. These results have implications for the interpretation of prior research on the reliability of recognized and disclosed numbers, for financial-accounting standard setters who may want to consider the reliability effects of their recognition versus disclosure decisions, and for auditing standard setters who may wish to clarify auditors' responsibilities for preventing misstatements in disclosed amounts. Copyright University of Chicago on behalf of the Institute of Professional Accounting, 2006.

Suggested Citation

  • Robert Libby & Mark W. Nelson & James E. Hunton, 2006. "Recognition v. Disclosure, Auditor Tolerance for Misstatement, and the Reliability of Stock-Compensation and Lease Information," Journal of Accounting Research, Wiley Blackwell, vol. 44(3), pages 533-560, June.
  • Handle: RePEc:bla:joares:v:44:y:2006:i:3:p:533-560
    as

    Download full text from publisher

    File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1475-679X.2006.00210.x
    File Function: link to full text
    Download Restriction: Access to full text is restricted to subscribers.

    As the access to this document is restricted, you may want to search for a different version of it.

    Citations

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


    Cited by:

    1. repec:eee:reacre:v:20:y:2008:i:c:p:3-25 is not listed on IDEAS
    2. Kothari, S.P. & Ramanna, Karthik & Skinner, Douglas J., 2010. "Implications for GAAP from an analysis of positive research in accounting," Journal of Accounting and Economics, Elsevier, vol. 50(2-3), pages 246-286, December.
    3. repec:eee:advacc:v:31:y:2015:i:1:p:91-95 is not listed on IDEAS
    4. Gaynor, Lisa Milici & McDaniel, Linda & Yohn, Teri Lombardi, 2011. "Fair value accounting for liabilities: The role of disclosures in unraveling the counterintuitive income statement effect from credit risk changes," Accounting, Organizations and Society, Elsevier, vol. 36(3), pages 125-134, April.
    5. repec:eee:reacre:v:24:y:2012:i:1:p:33-39 is not listed on IDEAS
    6. Blacconiere, Walter G. & Frederickson, James R. & Johnson, Marilyn F. & Lewis, Melissa F., 2011. "Are voluntary disclosures that disavow the reliability of mandated fair value information informative or opportunistic?," Journal of Accounting and Economics, Elsevier, vol. 52(2), pages 235-251.
    7. Norman, Carolyn Strand & Rose, Jacob M. & Suh, Ik Seon, 2011. "The effects of disclosure type and audit committee expertise on Chief Audit Executives' tolerance for financial misstatements," Accounting, Organizations and Society, Elsevier, vol. 36(2), pages 102-108, February.
    8. repec:eee:advacc:v:29:y:2013:i:2:p:186-194 is not listed on IDEAS
    9. repec:eee:reacre:v:29:y:2017:i:1:p:10-18 is not listed on IDEAS

    More about this item

    Lists

    This item is featured on the following reading lists or Wikipedia pages:
    1. Recognized plagiarism

    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:joares:v:44:y:2006:i:3:p:533-560. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley-Blackwell Digital Licensing) or (Christopher F. Baum). General contact details of provider: http://www.blackwellpublishing.com/journal.asp?ref=0021-8456 .

    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.

    We have no references for this item. You can help adding them by using 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.

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

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.