Abstract

http://ssrn.com/abstract=2163878
 


 



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 at Lincoln - School of Accountancy

Marjorie K. Shelley


University of Nebraska at Lincoln - School of Accountancy

February 12, 2014


Abstract:     
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: 47

Keywords: Estimation Uncertainty, Financial Statement Presentation, Financial Statements

JEL Classification: M4, M40, M41, M48

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Date posted: October 18, 2012 ; Last revised: February 12, 2014

Suggested Citation

Christensen, Brant E. and Glover, Steven M. and Omer, Thomas C. and Shelley, Marjorie K., Does Estimation Uncertainty Affect Investors’ Preference for the Form of Financial Statement Presentation? (February 12, 2014). Available at SSRN: http://ssrn.com/abstract=2163878 or http://dx.doi.org/10.2139/ssrn.2163878

Contact Information

Brant E. Christensen (Contact Author)
Texas A&M University (TAMU) - Department of Accounting ( email )
430 Wehner
College Station, TX 77843-4353
United States
979-845-0542 (Phone)

Steven M. Glover
Brigham Young University ( email )
Provo, UT 84602
United States
801-422-6080 (Phone)
801-422-0621 (Fax)
Thomas C. Omer
University of Nebraska at Lincoln - School of Accountancy ( email )
307 College of Business Administration
Lincoln, NE 68588-0488
United States
Marjorie Shelley
University of Nebraska at Lincoln - School of Accountancy ( email )
307 College of Business Administration
Lincoln, NE 68588-0488
United States
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