Context-Dependence of Auditors' Interpretation of the SFAS No. 5 Probability Expressions
Posted: 27 Feb 1998
Date Written: VOL 12, NO 1, FALL 1996
SFAS No. 5 requires accrual of contingent losses which are deemed "probable." This disclosure criterion is intended to be applied uniformly across a variety of contexts. We performed an experiment which examined whether audit managers' interpretations of the SFAS No. 5 probability expressions are influenced by one contextual feature event base rate. Counter to the intention of the FASB interpretations of the expression probable were positively associated with event base rate.
JEL Classification: M41
Suggested Citation: Suggested Citation