Critical Accounting Policy Disclosures

29 Pages Posted: 30 Aug 2006

See all articles by Carolyn B. Levine

Carolyn B. Levine

Carnegie Mellon University - David A. Tepper School of Business

Michael J. Smith

Boston University School of Management

Date Written: August 2006

Abstract

To increase investor awareness of the sensitivity of financial statements to the methods, assumptions, and estimates underlying their preparation, the Securities and Exchange Commission proposed that firms include disclosures about critical accounting policies in their 10-Ks. Using a large sample of CAP disclosures from SEC filers, we examine the extent to which CAP disclosures correlate with existing financial statement information, provide new information, and correlate with existing measures of accounting quality. We also consider strategic disclosure strategies and examine whether actual disclosures are consistent with hypotheses generated from game theoretical analyses. We provide evidence that firms disclosures confirm information provided within existing financial statements, provide incremental information. Rather than policy by policy, disclosure decisions seem to be made conditionally, using a portfolio approach.

Keywords: critical accounting policies, disclosure decisions

JEL Classification: L51, M41, M44, M45, G38

Suggested Citation

Levine, Carolyn B. and Smith, Michael J., Critical Accounting Policy Disclosures (August 2006). Available at SSRN: https://ssrn.com/abstract=927486 or http://dx.doi.org/10.2139/ssrn.927486

Carolyn B. Levine (Contact Author)

Carnegie Mellon University - David A. Tepper School of Business ( email )

5000 Forbes Avenue
Pittsburgh, PA 15213-3890
United States

Michael J. Smith

Boston University School of Management ( email )

595 Commonwealth Avenue
Boston, 02215
United States

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