The role of specialists in financial reporting: Evidence from pension accounting

Divya Anantharaman ()
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Divya Anantharaman: Rutgers Business School

Review of Accounting Studies, 2017, vol. 22, issue 3, No 8, 1306 pages

Abstract: Abstract The increasing use in financial reporting of estimates prepared by specialists has raised questions on the role these specialists play in financial reporting quality. In the setting of defined-benefit pension accounting—where the pension actuary is involved as a specialist—I examine whether pension sponsors with strong incentives to improve reported funding status pressure their actuaries for aggressive (obligation-reducing) assumptions. Among these sponsors, I find that those that are economically important clients of their actuaries use more aggressive discount rates than less important clients of the same actuary. Sponsors incentivized to inflate reported funding status but constrained from doing so also tend to seek out new actuaries. Discount rates become more aggressive after switches. These findings suggest that specialists are used to facilitate aggressive reporting. They also indicate that auditors—who are charged with evaluating specialists’ independence before relying on their work—may have difficulty implementing this guidance in practice.

Keywords: Specialists; Accounting estimates; Defined-benefit pensions; Pension accounting; Actuarial assumptions; Actuaries; Independence; M41 Accounting; M42 Auditing; M48 Government Policy and Regulation (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (3)

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DOI: 10.1007/s11142-017-9404-4

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