Pro Forma Accounting Reconciliation Disclosures: The Effect of Financial Reporting Knowledge and Information Viewing Behavior on Judgments of Nonprofessional Investors

50 Pages Posted: 23 Jul 2010 Last revised: 26 Aug 2010

See all articles by William N. Dilla

William N. Dilla

Iowa State University - Department of Accounting and Finance

Diane Joyce Janvrin

Iowa State University - Department of Accounting and Finance

Cynthia Jeffrey

Iowa State University

Date Written: July 21, 2010

Abstract

This study extends prior research by examining the extent to which financial reporting knowledge and information viewing behavior affect the influence of reconciled non-GAAP, or “pro forma” earnings disclosures on nonprofessional investors’ judgments. We find that the effects of pro forma earnings information on participants’ judgments differ, depending on their level of financial reporting knowledge and the amount of time they spent viewing the earnings reconciliation relative to other earnings information. Our results suggest that the effectiveness of financial reporting regulation may be dependent on characteristics of the general investing public that vary across investors. Regulators and standard setters need to be aware of the possible differential effects of financial reporting knowledge and investor type as they consider non-GAAP earnings reporting requirements.

Keywords: pro forma earnings, nonprofessional investors, Regulation G, information presentation

JEL Classification: C91, D83, M41

Suggested Citation

Dilla, William N. and Janvrin, Diane Joyce and Jeffrey, Cynthia G., Pro Forma Accounting Reconciliation Disclosures: The Effect of Financial Reporting Knowledge and Information Viewing Behavior on Judgments of Nonprofessional Investors (July 21, 2010). Available at SSRN: https://ssrn.com/abstract=1646618 or http://dx.doi.org/10.2139/ssrn.1646618

William N. Dilla (Contact Author)

Iowa State University - Department of Accounting and Finance ( email )

College of Business
Ames, IA 50011-2063
United States

Diane Joyce Janvrin

Iowa State University - Department of Accounting and Finance ( email )

College of Business
Ames, IA 50011-2063
United States

Cynthia G. Jeffrey

Iowa State University ( email )

396 Carver Hall
320 Carver Hall
Ames, IA 50011-2063
United States
515-294-9427 (Phone)

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