The Impact of Recognition Versus Disclosure on Financial Information: A Preparer's Perspective

We investigate whether recognition on the face of the financial statements versus disclosure in the footnotes influences the amount that financial managers report for a contingent liability. Using an experiment with corporate controllers and chief financial officers, we find that financial managers...

Full description

Saved in:
Bibliographic Details
Published in:Journal of accounting research 2014-06, Vol.52 (3), p.671-701
Main Authors: CLOR-PROELL, SHANA M., MAINES, LAUREEN A.
Format: Article
Language:English
Subjects:
Accounting research
Business entities
Capital market
Contingent liabilities
Corporate liability
Disclosure
Estimation bias
FASB standards
Financial information
Financial liabilities
Financial management
Financial statements
Liability
Liability management
Managers
Private life
Public companies
Studies
Citations: Items that this one cites
Items that cite this one
Online Access:Get full text
Tags: Add Tag
No Tags, Be the first to tag this record!
Description
Summary:We investigate whether recognition on the face of the financial statements versus disclosure in the footnotes influences the amount that financial managers report for a contingent liability. Using an experiment with corporate controllers and chief financial officers, we find that financial managers in public companies expend more cognitive effort and exhibit less strategic bias under recognition than disclosure. This difference appears to be associated with capital market pressures experienced by public company managers as we find that both the cognitive effort and bias exhibited by private company managers are unaffected by placement. As a result, public company managers make higher liability estimates for recognized versus disclosed liabilities. Their liability estimates are similar to those of private company managers for recognition but lower than private company managers' estimates for disclosure. Our results have implications for auditors and financial statement users in evaluating recognized versus disclosed information for public and private companies.
ISSN:0021-8456
1475-679X
DOI:10.1111/1475-679X.12053