The Effects of Uncertainty and Disclosure on Auditors' Fair Value Materiality Decisions

• 成果类型: Article
• 署名作者: Griffin, Jeremy B.
• 署名单位: University of Notre Dame
• 刊物名称: JOURNAL OF ACCOUNTING RESEARCH
• ISSN/ISSBN: 0021-8456
• DOI: 10.1111/1475-679X.12059
• 发表日期: 2014
• 页码: 1165-1193
• 关键词: misstatement; disposition; earnings; reliability; RECOGNITION; forecasts; Managers; RISK

摘要

Financial accounting standards increasingly require fair value measurements. I experimentally examine how uncertainty affects auditors' adjustment decisions when evaluating fair values. I manipulate two types of uncertainty, input subjectivity and outcome imprecision, and one reporting choice, supplemental disclosure. I find that auditors are most likely to require adjustments when fair values contain both more input subjectivity and more outcome imprecision, but that this likelihood diminishes when clients supplement recognized fair values with additional disclosure. Thus, consistent with moral licensing, I find that auditors tolerate greater potential misstatement in the financial statements when clients provide disclosure, suggesting that the SEC's preference for supplemental disclosure may have the unintended consequence of affecting fair values recognized in the body of the financial statements. I also provide evidence that auditors determine adjustment size by comparing recorded fair value to the nearest bound, rather than the midpoint, of the auditors' own range estimate, consistent with strict application of auditing standards.