The Impact of Recognition Versus Disclosure on Financial Information: A Preparer's Perspective

51 Pages Posted: 7 Feb 2014

See all articles by Shana Clor-Proell

Shana Clor-Proell

Texas Christian University - Department of Accounting

Laureen A. Maines

Indiana University - Kelley School of Business - Department of Accounting; PricewaterhouseCoopers

Multiple version iconThere are 2 versions of this paper

Date Written: February 5, 2014

Abstract

We investigate whether recognition on the face of the financial statements versus disclosure in the footnotes influences the amount that financial managers report for a contingent liability. Using an experiment with corporate Controllers and Chief Financial Officers, we find that financial managers in public companies expend more cognitive effort and exhibit less strategic bias under recognition than disclosure. This difference appears to be associated with capital market pressures experienced by public-company managers as we find that both the cognitive effort and bias exhibited by private-company managers are unaffected by placement. As a result, public-company managers make higher liability estimates for recognized versus disclosed liabilities, and make similar liability estimates to those of private-company managers for recognition but make lower estimates than private-company managers for disclosure. Our results have implications for auditors and financial statement users in evaluating recognized versus disclosed information for public and private companies.

Keywords: Recognition versus disclosure, Preparer, Public versus private company, Reliability

JEL Classification: M41

Suggested Citation

Clor-Proell, Shana and Maines, Laureen A., The Impact of Recognition Versus Disclosure on Financial Information: A Preparer's Perspective (February 5, 2014). Kelley School of Business Research Paper No. 2014-30, Available at SSRN: https://ssrn.com/abstract=2391337 or http://dx.doi.org/10.2139/ssrn.2391337

Shana Clor-Proell

Texas Christian University - Department of Accounting ( email )

M.J. Neeley School of Business
TCU Box 298530
Fort Worth, TX 76129
United States

Laureen A. Maines (Contact Author)

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

1309 E. 10th Street
Bloomington, IN 47405
United States
812-855-2611 (Phone)
812-855-4985 (Fax)

PricewaterhouseCoopers

1301 Avenue of the Americas
New York, NY 10019
United States

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