The Relative Influences of Officers and Auditors on Annual Report Textual Disclosures
62 Pages Posted: 30 Apr 2019 Last revised: 29 Jul 2019
Date Written: July 10, 2019
We examine the relative influences of firm officers and external auditors on textual disclosures in the annual report. Using a sample of public companies that file XBRL-tagged financial statements with the SEC between 2011 and 2018, we find that external auditors have the strongest influence on Management’s Discussion and Analysis (MD&A) and financial statement footnote disclosures, followed by chief financial officers and then chief executive officers. We rule out the following possible alternative explanations for the external auditor’s significant influence on disclosures: auditor changes that coincide with other changes in financial reporting personnel; changes in underlying firm economics that compel disclosure change; and, audited information that is duplicated from the footnotes in MD&A. In additional analyses, we find that changes from a lower quality auditor to a higher quality auditor and between lower quality auditors are associated with greater changes in disclosures and that auditors have relatively greater influence over smaller clients’ disclosures. Our findings highlight the significant influence external auditors have on firm financial reporting that extends to textual disclosures.
Keywords: Disclosure, MD&A, Footnotes, Textual Analysis, Auditors, Chief Financial Officers, Chief Executive Officers
JEL Classification: D83, M41, M42, M48
Suggested Citation: Suggested Citation