Noncompliance with Mandatory Disclosure Requirements: The Magnitude and Determinants of Undisclosed Permanently Reinvested Earnings

2014 ◽  
Vol 90 (1) ◽  
pp. 59-93 ◽  
Author(s):  
Benjamin C. Ayers ◽  
Casey M. Schwab ◽  
Steven Utke
Keyword(s):  
Accounting Standards ◽  
Data Availability ◽  
Financial Statement ◽  
Mandatory Disclosure ◽  
Cross Sectional ◽  
Foreign Earnings ◽  
Disclosure Requirements ◽  
Deferred Tax ◽  
Jel Classifications

ABSTRACT We develop estimates of a firm's foreign earnings designated as permanently reinvested (PRE) and the unrecorded deferred tax liability (TAX) associated with PRE that are independent of whether a firm explicitly discloses this information. We then investigate firms' noncompliance with Accounting Standards Codification (ASC) 740 provisions that require financial statement disclosure of PRE and either the tax associated with PRE or a statement that calculating the tax is not practicable. We find that a nontrivial portion of firms do not comply with the PRE disclosure requirements and that the amounts of undisclosed PRE and the related tax are substantial in magnitude. Cross-sectional evidence suggests managers opportunistically choose when to disclose PRE and TAX and that compliance with PRE disclosure requirements increased following the American Jobs Creation Act of 2004, which increased incentives to disclose PRE. JEL Classifications: M40; M41; H25; K34. Data Availability: Data used in this study are available from public sources identified in the paper.

Social Media and Voluntary Nonfinancial Disclosure: Evidence from Twitter Presence and Corporate Political Disclosure

2018 ◽  
Vol 33 (2) ◽  
pp. 99-128 ◽  
Author(s):  
Lijun (Gillian) Lei ◽  
Yutao Li ◽  
Yan Luo
Keyword(s):  
Social Media ◽  
Econometric Model ◽  
Data Availability ◽  
Political Contributions ◽  
Cross Sectional ◽  
Political Activities ◽  
Social Media Platforms ◽  
Sectional Analysis ◽  
Jel Classifications ◽  
Nonfinancial Disclosure

ABSTRACT This study uses a sample of 1,316 firm-year observations of S&P 500 companies (2012–2016) to investigate whether and how social media (i.e., Twitter) affects firms' voluntary nonfinancial disclosure (i.e., corporate political disclosure). Our results show that Twitter-adopting firms are generally more transparent in their disclosure of corporate political contributions and of related policies and board oversight. Moreover, firms with more Twitter followers and firms whose corporate political activities are targeted in more Twitter messages are more transparent in such disclosures. Our cross-sectional analysis suggests that this effect is stronger for firms whose stakeholders are more active on Twitter and firms that are less visible or more reputable. Our results remain robust to different econometric model specifications and controlling for alternative social media platforms. Taken together, our findings suggest that social media (i.e., Twitter) presence exerts pressure on firms' voluntary nonfinancial disclosure practices (i.e., corporate political disclosure). JEL Classifications: G38; M41; M48. Data Availability: Data are available from the sources indicated in the text.

U.S. Audit Partner Rotations

2016 ◽  
Vol 92 (3) ◽  
pp. 209-237 ◽  
Author(s):  
Henry Laurion ◽  
Alastair Lawrence ◽  
James P. Ryans
Keyword(s):  
Securities And Exchange Commission ◽  
Data Availability ◽  
Listed Firms ◽  
Deferred Tax ◽  
Audit Partner Rotation ◽  
Jel Classifications

ABSTRACT We investigate the effects of audit partner rotation among U.S. publicly listed firms, utilizing the fact that audit partners are periodically copied by name in public correspondence between issuers and the Securities and Exchange Commission. Relative to non-rotation firms, we find no evidence of a change in the frequency of misstatements following the partner rotation; however, there is an increase in the frequency of restatement discoveries and announcements. We also find an increase in deferred tax valuation allowances. Overall, the results provide some evidence suggesting that U.S. partner rotations support a fresh look at the audit engagement. JEL Classifications: M41; M42; M48. Data Availability: Data are publicly available from sources identified in the article.

The Effect of Audit Duality on Audit Quality

2020 ◽  
Vol 19 (2) ◽  
pp. 65-89
Author(s):  
Lawrence Chui ◽  
Oksana Kim ◽  
Byron J. Pike
Keyword(s):  
Financial Reporting ◽  
Audit Quality ◽  
Accounting Standards ◽  
Financial Statement ◽  
Regulatory Environment ◽  
Public Companies ◽  
Potential Reduction ◽  
Audit Firm ◽  
Financial Reporting Standards ◽  
Jel Classifications

ABSTRACT The Russian regulatory environment offers a unique audit duality situation in which public companies receive two separate financial statement audits by the same audit firm: one based on Russian Accounting Standards (RAS) and the other on International Financial Reporting Standards (IFRS). We assess whether audit duality influences audit quality, measured by modifications to the standard audit report. Using a sample of public Russian companies from 2004 to 2016, we find that audit duality significantly reduces auditors' propensity to modify the audit opinions for both the RAS and IFRS audits as compared to companies that engage a different firm for each audit. This potential reduction in audit quality is mitigated when the company is in a loss position. The presence of Big N dual auditors does not diminish the observed findings and, in fact, appears to translate into lower-quality RAS-based audits of financially distressed companies. JEL Classifications: M42; M48.

Office-Client Balance and Metro Area Audit Market Competition

2020 ◽  
Vol 39 (4) ◽  
pp. 113-141
Author(s):  
Michael L. Ettredge ◽  
Matthew G. Sherwood ◽  
Lili Sun
Keyword(s):  
Relative Abundance ◽  
Audit Quality ◽  
Market Competition ◽  
Data Availability ◽  
Financial Statement ◽  
Audit Market ◽  
Metro Area ◽  
Big 4 ◽  
Jel Classifications

SUMMARY We propose a new audit supplier competition construct, the Office-Client Balance (OCB), which consists of the relative abundance of competing audit offices and audit clients in a metropolitan (metro) area. From this construct, we derive a metro level audit competition proxy reflecting surpluses or shortfalls of total metro audit office numbers relative to the national metro OCB norm: the OCB_TOT. Consistent with the predictions of Porter's Five Forces theory, we find that OCB_TOT is associated with lower fees, more auditor turnover, and more (less) office exits (entrances) in metro audit markets. These findings validate OCB_TOT as a proxy for audit market competition. Our results indicate that greater metro level competition among auditors (more positive OCB_TOT) is associated with higher audit quality, proxied by fewer financial statement misstatements. Several additional analyses suggest that OCB_TOT is useful in explaining clients' choices of local (versus remote) audit offices and Big 4 (versus non-Big 4) offices. Data Availability: Data used in this study are available from public sources. JEL Classifications: G18; L10; M42.

Disclosure Decisions Surrounding Permanently Reinvested Foreign Earnings

2014 ◽  
Vol 36 (2) ◽  
pp. 101-116 ◽  
Author(s):  
Lisa Eiler ◽  
Lisa A. Kutcher
Keyword(s):  
Firm Value ◽  
Foreign Earnings ◽  
Disclosure Decisions ◽  
Accounting Rules ◽  
Deferred Tax ◽  
Jel Classifications

ABSTRACT We examine the determinants of disclosure decisions relating to the unrecognized deferred tax liability on permanently reinvested earnings (PRE). Prior research shows firm value is lower when firms disclose an estimated deferred tax liability for PRE, suggesting investors find this information useful. Since accounting rules provide managers with flexibility in disclosures about the estimated tax liability on PRE, managers may have discretion in the level of transparency related to these disclosures. We find that transparency relating to disclosures about the unrecognized deferred tax liability on PRE is decreasing in the complexity of the tax calculation. We find that disclosure transparency is increasing in the size of the estimated tax liability on hypothetical repatriation of PRE. However, we do not find that disclosure is more transparent when the tax department is more sophisticated or of higher quality. We predict, but do not find, that disclosure transparency is positively related to the overall disclosure environment of the firm. JEL Classifications: G30.

Accounting Adjustments and the Valuation of Financial Statement Note Information in 10-K Filings

2011 ◽  
Vol 86 (5) ◽  
pp. 1577-1604 ◽  
Author(s):  
Gus De Franco ◽  
M. H. Franco Wong ◽  
Yibin Zhou
Keyword(s):  
Stock Returns ◽  
Stock Prices ◽  
Data Availability ◽  
Financial Statement ◽  
Target Price ◽  
Equity Analysts ◽  
Jel Classifications

ABSTRACT We examine the valuation of financial statement note information at the time of 10-K filings. We find that stock returns around 10-K filings are positively related to accounting adjustments calculated from financial statement note information. We further document that the likelihood of equity analysts issuing a report and updating their target price estimates at the 10-K dates is increasing in the magnitude of the adjustments. Those analysts who do update their target prices at this time revise their estimates consistent with the sign and magnitude of the adjustments. These findings are consistent with financial statement users utilizing financial statement note information to make accounting adjustments, thereby incorporating this information into stock prices. JEL Classifications: G14, G29, M40, M41, M44. Data Availability: All data are publicly available from the sources identified in the article.

scholarly journals Comments by the Auditing Standards Committee of the Auditing Section of the American Accounting Association on FASB Exposure Draft of Proposed Accounting Standard Update: Notes to Financial Statements (Topic 235): Assessing Whether Disclosures Are Material

2016 ◽  
Vol 10 (2) ◽  
pp. C1-C9
Author(s):  
Urton L. Anderson ◽  
Marcus M. Doxey ◽  
Marshall A. Geiger ◽  
Willie E. Gist ◽  
Diane J. Janvrin ◽  
...  
Keyword(s):  
Accounting Standards ◽  
Financial Statements ◽  
Data Availability ◽  
Financial Accounting ◽  
Financial Statement ◽  
Financial Accounting Standards Board ◽  
Accounting Standard ◽  
Stated Objective ◽  
Auditing Standards ◽  
The Way

SUMMARY On September 24, 2015 the Financial Accounting Standards Board (FASB) solicited public comments on a proposed Accounting Standards Update of the FASB Accounting Standards Codification. The stated objective is to improve the effectiveness of footnote disclosures to financial statement users. The focus of the Update is to clarify the way materiality should be considered when assessing requirements for providing information in the notes. The comment period ended on December 8, 2015. This commentary summarizes the contributors' views on these amendments. Data Availability: The exposure draft of Proposed Accounting Standard Update: Notes to Financial Statements (Topic 235): Assessing Whether Disclosures Are Material is available at: http://www.fasb.org/cs/ContentServer?c= Document_C&pagename=FASB%2FDocument_C%2FDocumentPage&cid=1176166402325

Why are 10-K Filings So Long?

2015 ◽  
Vol 30 (1) ◽  
pp. 1-21 ◽  
Author(s):  
Richard A. Cazier ◽  
Ray J. Pfeiffer
Keyword(s):  
Statistical Analysis ◽  
Text Analysis ◽  
Managerial Discretion ◽  
Data Availability ◽  
Mandatory Disclosure ◽  
Analysis Software ◽  
Policy Makers ◽  
Disclosure Requirements ◽  
Prior Literature ◽  
Shed Light

SYNOPSIS This study provides evidence on relative magnitudes of factors that appear to drive 10-K length. We employ statistical analysis and text analysis software to partition 10-K length into the portions explained by each of three fundamental determinants: (1) firms' operating complexity, (2) disclosure redundancy, and (3) residual disclosure. Our primary analyses shed light on the relative magnitudes of each of these components and on the extent to which each varies across firms. Disclosure redundancy and operating complexity explain roughly equal amounts of variation in 10-K length within our sample. However, 10-K length unexplained by redundancy or firms' operating complexity (residual disclosure) accounts for the largest degree of variation in 10-K length. Our results are consistent with the notion that a substantial amount of disclosure volume contained in 10-K reports is attributable to managerial discretion in how firms respond to mandatory disclosure requirements. Our study expands prior literature that has focused largely on the consequences of 10-K length and provides important insights for policy makers and regulators seeking to improve disclosure requirements. Data Availability: Data available upon request.

Do Creditors Prefer Smooth Earnings? Evidence from European Private Firms

2015 ◽  
Vol 14 (2) ◽  
pp. 151-180 ◽  
Author(s):  
Joachim Gassen ◽  
Rolf Uwe Fülbier
Keyword(s):  
Data Availability ◽  
Cost Of Debt ◽  
Private Firms ◽  
Relative Importance ◽  
Cross Sectional ◽  
Debt Contracting ◽  
Country Level ◽  
The Cost ◽  
Earnings Smoothness ◽  
Jel Classifications

ABSTRACT We investigate the interplay between creditor financing and the smoothness of earnings reported by European private firms, and document how heterogeneous debt-contracting infrastructures across Europe moderate this relation. We expect the smoothness of earnings to be positively related to the relative importance of credit providers in our setting. More importantly, we predict this relation to be more pronounced in regimes with higher bankruptcy and contract enforcement costs. Finally, we hypothesize that earnings smoothness is negatively related to the cost of debt of our sample firms. Our large-sample empirical evidence confirms our expectations. While the cross-sectional nature of our setting limits our potential to address endogeneity concerns and, thus, caution is required when interpreting our findings in a causal way, they are consistent with the accounting of European private firms being shaped by creditor incentives and with this link being moderated by the country-level efficiency of the debt-contracting infrastructure. JEL Classifications: M41; G14; F42. Data Availability: All data used in this study are publicly available from the sources identified in the text.

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