Do Voluntary Disclosures that Disavow the Reliability of Mandated Fair Value Information Reflect Legitimate Concerns About Reliability?
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
October 1, 2010
AAA 2010 Financial Accounting and Reporting Section (FARS) Paper
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.
Number of Pages in PDF File: 57
Keywords: Fair value, disclosure, reliability, stock options
JEL Classification: M41, M45, G12
Date posted: September 6, 2009 ; Last revised: May 11, 2014