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Dissertation
Critical accounting estimate disclosures and the value relevance of balance sheet items
University of Iowa
Doctor of Philosophy (PhD), University of Iowa
Summer 2012
DOI: 10.17077/etd.6xg1ulnh
Abstract
<p>In the early 2000s, the Securities and Exchange Commission (SEC) called on firms to provide new MD &A disclosures about their critical accounting estimates. The new disclosures outline how reasonably likely changes in firms' highly uncertain accounting estimates would affect earnings. Because the new disclosure practice potentially highlights accrual estimates with a reduced level of reliability (i.e. greater estimation error) arising from uncertainty in the accrual measurement process, I examine whether the presence of a critical accounting estimate (CAE) disclosure partially explains cross-sectional variation in the value relevance of balance sheet items. Using a sample of non-financial and non-utility S &P 500 firms from 2004 to 2009, I find the value relevance of a balance sheet item is negatively associated with the presence of a related CAE disclosure. To corroborate my value relevance findings, I also examine whether the predictive value of accruals with respect to future cash flows and accrual noise, which are two accounting-based characteristics of useful accounting information, are associated with the presence of a CAE disclosure. I find the incremental predictive value of accruals with respect to future cash flows (accrual noise) is negatively (positively) associated with the presence of a CAE disclosure. Overall, these results suggest investors perceive balance sheet items accompanied by a related, account-specific CAE disclosure to have lower reliability, and consistent with investors' perceptions, accrual estimates have less predictive value and are noisier when these disclosures are present. Other findings indicate that the magnitude of estimation error and disclosure complexity play a role in the extent to which investors reduce their reliability perceptions in the presence of a CAE disclosure.</p>
Details
- Title: Subtitle
- Critical accounting estimate disclosures and the value relevance of balance sheet items
- Creators
- Matthew Ryan Glendening - University of Iowa
- Contributors
- Cristi A. Gleason (Advisor)W. Bruce Johnson (Advisor)Daniel W. Collins (Committee Member)Jon A. Garfinkel (Committee Member)George R. Neumann (Committee Member)
- Resource Type
- Dissertation
- Degree Awarded
- Doctor of Philosophy (PhD), University of Iowa
- Degree in
- Business Administration
- Date degree season
- Summer 2012
- Publisher
- University of Iowa
- DOI
- 10.17077/etd.6xg1ulnh
- Number of pages
- ix, 92 pages
- Copyright
- Copyright 2012 Matthew Glendening
- Language
- English
- Description illustrations
- charts
- Description bibliographic
- Includes bibliographical references (pages 89-92).
- Academic Unit
- Tippie College of Business
- Record Identifier
- 9983776621402771
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