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

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.

Interlingual translation of the International Financial Reporting Standards as institutional work

“…The findings from these studies suggest that the concepts underlying the words differ between languages, which may have a bearing on how adequately uncertainty expressions, and consequently accounting and auditing standards, are translated into other languages (Davidson & Chrisman, 1993;Doupnik & Riccio, 2006;Doupnik & Richter, 2003). Further, the translation of uncertainty expressions (Huerta et al, 2013) and their interpretation (Aharony & Dotan, 2004;Doupnik & Richter, 2003;Laswad & Mak, 1997;Simon, 2002) differ among individuals who are native speakers of the same language. Based on the findings of experimental studies, researchers have concluded that inconsistent interpretation of uncertainty expressions by preparers of financial statements with different native languages can lead to the inconsistent application of accounting standards, especially given that accounting standards include such expressions in abundance (e.g., Doupnik & Riccio, 2006;Doupnik & Richter, 2003).…”

“…First, it contributes to the literature on the translation of accounting and auditing standards by examining the procedures through which different regulators, translators and accounting experts reviewing the translations address the practical problems of linguistic equivalence. This is a novel contribution to the literature because extant studies have examined the outcomes of translation activities, that is, translated text segments and terms, focusing primarily on inaccuracies, translation errors (e.g., Dahlgren & Nilsson, 2012;Nobes, 2006;Sunder, 2011), or differences in the interpretation of uncertainty expressions (e.g., Aharony & Dotan, 2004;Doupnik & Richter, 2003). Several accounting studies have suggested that translation is inherently problematic (Baskerville & Evans, 2011;Evans, 2004;Evans et al, 2015, Zeff, 2007.…”

The Informational Effects of Tightening Oil and Gas Disclosure Rules

“…The terms “reasonable certainty” and “proved” were interpreted in a range between the 50th and the 90th percentile of the probability distribution of reserves (McLane et al ). Similarly, consistent with this notion, experimental research in accounting documents significant variation in the interpretation of non‐bright‐line probability statements, especially between users and producers of accounting information (e.g., Schultz and Reckers ; Jiambalvo and Wilner ; Harrison and Tomassini ; Reimers ; Amer et al , ; Aharony and Dotan ; and related findings in psychology research, such as Budescu and Wallsten ). Prior literature also suggests that numerical thresholds are less influenced by context and framing, language diversity, and cultural characteristics (Stone and Dilla ; Windschitl and Wells ; Price and Wallace ; Doupnik and Richter ).…”

Accounting quality versus auditor choice under strong tax-GAAP conformity: the case of Brazil

“…It was assume that all category (4) liabilities included in the amnesty were in violation of GAAP and should have been at least mentioned in footnotes by December of 1999. If perceived probability thresholds in Brazil are similar to those in the U.S., this is equivalent to assuming that all previously undisclosed liabilities included in the amnesty had loss probabilities equal to or greater than 25%, the highest estimate of the remote/reasonably possible threshold in the U.S. (RAGHUNANDAN et al, 1991;REIMERS, 1992;AHARONY and DOTAN, 2004. ) 3 Accounting for loss contingencies under Brazilian GAAP is described in IBRACON Statement No.…”