Accounting Reporting Complexity and Non-GAAP Earnings Disclosure
52 Pages Posted: 2 Aug 2018 Last revised: 29 May 2019
Date Written: January 8, 2019
Stakeholders posit that the proliferation of non-GAAP metrics reflects the complexity of GAAP accounting. We explore this issue by investigating how accounting reporting complexity (ARC) shapes the disclosure and quality of manager-adjusted earnings information. We use a firm-level XBRL measure of ARC that maps directly to the FASB codification and captures the volume of accounting concepts applied within financial statement filings. We find that managers are 16% more likely to disclose an adjusted earnings metric when ARC shifts from the 25th to the 75th percentile. Hand-collected evidence suggests that firms tend to exclude earnings items with complex accounting guidance when ARC is high. Notably, the effect of ARC on non-GAAP disclosure is robust and incremental to the effects arising from general business and disclosure complexity. Furthermore, we find that the quality of managers’ earnings exclusions increases with ARC, though the complexity of certain accounts leads to lower quality adjustments.
Keywords: accounting complexity, non-GAAP earnings, XBRL, GAAP, voluntary disclosure
JEL Classification: M41, M43
Suggested Citation: Suggested Citation