Financial Reporting Uniformity: Its Relation to Comparability and Its Impact on Financial Statement Users

Abstract

We develop a Compustat-based financial statement account uniformity measure based on the presentation of common financial statement line items. We define uniformity using a Jaccard similarity index where a firm’s non-missing Compustat data items are compared to a prototypical firm for that industry-year. We emphasize the conceptual difference between uniformity and comparability, and our tests do not show a significant association between uniformity and output-based accounting comparability. However, we find that the association between account uniformity and comparability becomes positive in high R&D firms, while it becomes negative in firms with higher managerial discretion. We demonstrate that our uniformity measure is positively associated with analyst coverage and analyst forecast accuracy, and negatively associated with analyst forecast dispersion, consistent with financial statement account uniformity being related to information processing efficiencies. Furthermore, we partition our uniformity measure into separate income statement and balance sheet components. We find that income statement uniformity is associated with higher forecast accuracy and lower forecast dispersion, while balance sheet uniformity is associated with greater analyst coverage.

Keywords: Uniformity, Flexibility, Comparability, Analyst Forecasts, Analyst Coverage, Analyst Forecast Dispersion, Analyst Forecast Accuracy, XBRL

JEL Classification: M41, G10, G14