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Do Voluntary Disclosures that Disavow the Reliability of Mandated Fair Value Information Reflect Legitimate Concerns About Reliability?

57 Pages Posted: 6 Sep 2009 Last revised: 11 May 2014

Walter G. Blacconiere

Indiana University - Kelley School of Business - Department of Accounting

James R. Frederickson

Melbourne Business School

Marilyn F. Johnson

Michigan State University - Department of Accounting & Information Systems

Melissa Fay Lewis-Western

Brigham Young University

Multiple version iconThere are 2 versions of this paper

Date Written: October 1, 2010

Abstract

One consequence of the shift to fair value measurement is the emergence of voluntary disclosures in audited financial statements that question the reliability of mandated fair value information. We refer to these disclosures as reliability disavowals and address three questions: Are fair value estimates less reliable for firms that disavow? Do managers of disavowal firms have reason to believe that they cannot reliably estimate the disavowed fair values? Are factors indicative of reliability problems associated with the decision to disavow? We address these questions in the context of managers’ stock option compensation estimates disclosed under SFAS 123. Our results suggest reliability disavowals reflect legitimate reliability concerns, consistent with managers believing that supplemental disclosures about fair value estimates provide useful information about the limitations of the estimates, which is the FASB’s position in SFAS 157.

Keywords: Fair value, disclosure, reliability, stock options

JEL Classification: M41, M45, G12

Suggested Citation

Blacconiere, Walter G. and Frederickson, James R. and Johnson, Marilyn F. and Lewis-Western, Melissa Fay, Do Voluntary Disclosures that Disavow the Reliability of Mandated Fair Value Information Reflect Legitimate Concerns About Reliability? (October 1, 2010). AAA 2010 Financial Accounting and Reporting Section (FARS) Paper. Available at SSRN: https://ssrn.com/abstract=1467954 or http://dx.doi.org/10.2139/ssrn.1467954

Walter G. Blacconiere

Indiana University - Kelley School of Business - Department of Accounting ( email )

1309 E. 10th Street
Bloomington, IN 47405
United States
812-855-2653 (Phone)
812-855-4985 (Fax)

James R. Frederickson

Melbourne Business School ( email )

200 Leicester Street
Carlton, Victoria 3053
Australia

Marilyn F. Johnson

Michigan State University - Department of Accounting & Information Systems ( email )

270 North Business Complex
East Lansing, MI 48824-1034
United States
517-432-0152 (Phone)
517-432-1101 (Fax)

Melissa Fay Lewis-Western (Contact Author)

Brigham Young University ( email )

Provo, UT 84602
United States
801-703-8426 (Phone)

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