The Value Relevance of Managers' and Auditors' Disclosures About Material Measurement Uncertainty
Dennis, Sean A., Griffin, Jeremy B., Zehms, Karla M.
The Accounting Review · 2019 · Volume 94 · Issue 4
Abstract
Regulators now require auditors to provide information about how they evaluate complex estimates. Because users encounter this auditor-provided information alongside management-provided information, we jointly examine the value relevance of these disclosures. We also examine whether visual cues in audit reports influence how nonprofessional investors use these disclosures. We find that disclosures from managers and auditors providedifferentvalue-relevant information about thesameunderlying issue. While users struggle to weight fully narrative auditor disclosures in their valuation judgments without corresponding management disclosures, visual cues facilitate their weighting of information about the audit. Specifically, users take increased price protection when auditor disclosures also include visual cues. However, consistent with market signaling theory, corresponding voluntary disclosures from management attenuate this price protection. This suggests management can mitigate negative valuation effects that may arise from auditor disclosures, and implies that visual cues in audit reports can prompt managers to increase disclosure transparency. Data Availability:Contact the authors.
Keywords
audit reports, disclosure, measurement uncertainty, fair value
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