Recognition versus Disclosure and Audit Fees and Costs:Evidence from Pension Accounting in Japan

Masaki Kusano and Yoshihiro Sakuma

Discussion papers from Graduate School of Economics , Kyoto University

Abstract: Statement No. 26, Accounting Standard for Retirement Benefits, requires Japanese firms to recognize previously off-balance sheet pension liabilities on their balance sheets. We explore auditors’ responses to recognized versus disclosed pension liabilities in the Japanese audit market. We use a pre-Statement No. 26 versus post-Statement No. 26 setting to analyze the effects of disclosed versus recognized pension information on audit fees and costs. We show that disclosed pension liabilities are processed similarly to recognized previously off-balance sheet pension liabilities when audit fees are determined. However, we find that associations with audit costs differ between disclosed and recognized pension liabilities. We also find that audit costs’ differential relations with disclosed and recognized pension liabilities are particularly pronounced for firms with a large pension plan deficit. Overall, our results suggest that auditors scrutinize recognized amounts more closely than disclosed financial information, thereby increasing the reliability of accounting information.

Keywords: Recognition versus Disclosure; Pension Accounting; Audit Fees; Audit Costs (search for similar items in EconPapers)
JEL-codes: M41 M42 M48 (search for similar items in EconPapers)
Pages: 56
Date: 2019-11
New Economics Papers: this item is included in nep-acc, nep-age and nep-ore
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:kue:epaper:e-19-007

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