The disclosure quality consequences of copying standard-setter guidance

Rachel Scott (), A. Nicole Skinner () and Kristen Valentine ()
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Rachel Scott: Terry College of Business
A. Nicole Skinner: Terry College of Business
Kristen Valentine: Terry College of Business

Review of Accounting Studies, 2024, vol. 29, issue 1, No 22, 770-808

Abstract: Abstract We examine the disclosure quality consequences of copying FASB guidance when drafting initial narrative disclosures. Specifically, we study first-time disclosures after three accounting standard changes with significant narrative disclosure requirements (ASU 2014-09, SFAS 161 and SFAS 157). We find robust evidence that initial disclosures similar to FASB guidance contain less firm-specific information and are less readable, on average. Moreover, we find some evidence that copying FASB guidance when drafting initial disclosures is associated with muted analyst revisions, suggesting that the resultant disclosures may be less useful to analysts. However, we also find that firms that copy FASB guidance when drafting new disclosures receive fewer SEC comment letters related to the new standard, indicating that firms enjoy some benefit from imitating the FASB. These results shed new light on the firm’s information production process and should be important to regulators providing implementation guidance, managers drafting initial disclosures, and academics researching accounting standard changes.

Keywords: Disclosure quality; FASB guidance; Accounting standards; Initial disclosure; Narrative disclosure; Discretionary disclosure; Standard setters (search for similar items in EconPapers)
JEL-codes: D83 M41 M48 (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1007/s11142-022-09728-7

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