Recognition and Disclosure Reliability: Evidence from SFAS No. 106

Posted: 15 Nov 2003

See all articles by Paquita Y. Davis-Friday

Paquita Y. Davis-Friday

Zicklin School of Business; City University of New York - Stan Ross Department of Accountancy

Chao-Shin Liu

University of Notre Dame - Department of Accountancy

H. Fred Mittelstaedt

University of Notre Dame

Abstract

This paper examines a fundamental question of interest to researchers and regulators: Does the market treat disclosed financial statement information as if it is less reliable than information recognized in the body of the financial statements? Specifically, we compare the perceived reliability of liabilities for retiree benefits other than pensions (PRBs) disclosed prior to adoption of SFAS No. 106 with the perceived reliability of PRB liabilities subsequently recognized under SFAS No. 106. Overall, the evidence is consistent with the market treating disclosed PRB liabilities as less reliable than recognized PRB liabilities and pension liabilities. However, once PRB liabilities are recognized, they do not appear to be any less reliable than pension liabilities. These findings are inconsistent with the Choi et al. (1997) conclusion that PRB liabilities are inherently less reliable than pension liabilities. The paper also investigates factors that may have contributed to the lower perceived disclosure reliability. Our results suggest that the market perceived PRB liability disclosures to be less reliable when firms provided range disclosures, had higher probabilities of reducing plan benefits, or had lower ratios of retiree to total PRB obligations. These findings suggest that reliability may have been enhanced if more supporting details had been provided in SAB No. 74 disclosures.

Keywords: disclosure, recognition, reliability, SFAS N. 106

JEL Classification: C13, M41, M44, M45

Suggested Citation

Davis-Friday, Paquita Y. and Liu, Chao-Shin and Mittelstaedt, H. Fred, Recognition and Disclosure Reliability: Evidence from SFAS No. 106. Contemporary Accounting Research, Forthcoming. Available at SSRN: https://ssrn.com/abstract=466380

Paquita Y. Davis-Friday (Contact Author)

Zicklin School of Business ( email )

55 Lexington Ave., Box B13-260
New York, NY 10010
United States
646-312-3048 (Phone)

City University of New York - Stan Ross Department of Accountancy ( email )

One Bernard Baruch Way, Box B12-225
New York, NY 10010
United States
646-312-3048 (Phone)
646-312-3161 (Fax)

Chao-Shin Liu

University of Notre Dame - Department of Accountancy ( email )

Mendoza College of Business
Notre Dame, IN 46556-5646
United States
574-631-6029 (Phone)
574-631-5255 (Fax)

H. Fred Mittelstaedt

University of Notre Dame ( email )

374 Mendoza College of Business
Notre Dame, IN 46556-0399
United States
574-631-5087 (Phone)
574-631-5255 (Fax)

Register to save articles to
your library

Register

Paper statistics

Abstract Views
1,098
PlumX Metrics