Does Estimation Uncertainty Affect Investors’ Preference for the Form of Financial Statement Presentation?
Brant E. Christensen
Texas A&M University - Department of Accounting
Steven M. Glover
Brigham Young University
Thomas C. Omer
University of Nebraska-Lincoln
Marjorie K. Shelley
University of Nebraska at Lincoln
July 23, 2013
The uncertainty underlying transactions and estimates, and how it is communicated in financial statements, is of increasing concern to financial statement users, preparers, standard setters, and auditors. In this study we examine how the underlying uncertainty of financial statement information influences well-informed investors’ preference for point versus range presentation. Consistent with congruity theory (Budescu and Wallsten 1995), which states that individuals prefer the form of communication that best correlates to the inherent precision or uncertainty of the information communicated, we find that as uncertainty increases, investors prefer that financial statement information be presented as a range rather than a point estimate. We also find that investors deem ranges to be more accurate, credible and informative than point estimates, especially in situations of high uncertainty. These findings provide regulators with a clearer idea of how investors view uncertainty and the form in which they prefer uncertain financial statement information to be communicated.
Number of Pages in PDF File: 48
Keywords: Estimation Uncertainty, Financial Statement Presentation, Financial Statements
JEL Classification: M4, M40, M41, M48working papers series
Date posted: October 18, 2012 ; Last revised: August 13, 2013
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