TY - JOUR
T1 - Reporting accounting changes and their multi-period effects
AU - Emett, Scott
AU - Nelson, Mark W.
N1 - Funding Information:
We appreciate financial support from the S.C. Johnson Graduate School of Management at Cornell University and the W.P. Carey School of Business at Arizona State University, and helpful comments and suggestions from Ken Trotman (the editor), Spencer Anderson, Scott Asay, Jeremy Bentley, Rob Bloomfield, Pat Hopkins, Joseph Johnson, Sunhee Kim, Lisa Koonce, Bob Libby, Bob Lipe, Marlys Lipe, Eldar Maksymov, Joel Owens, Joseph Pacelli, Bob Swieringa, Brad Tuttle, Scott Vandervelde, Eric Yeung, Aaron Zimbelman, two anonymous reviewers, and workshop participants at Arizona State University, Brigham Young University's Accounting Symposium, Cornell University, the University of Georgia, the University of Massachusetts at Amherst, the University of South Carolina, and the New England Behavioral Accounting Research Symposium.
Publisher Copyright:
© 2017 Elsevier Ltd
PY - 2017/2/1
Y1 - 2017/2/1
N2 - U.S. GAAP and IFRS require full disclosure of the effects of an accounting change in the year the change is made, but not in future years. However, some accounting changes have multi-period effects. We conduct an experiment to examine whether investors forget to adjust for an accounting change in periods subsequent to the change, and examine the effectiveness of interventions designed to mitigate that tendency. In the experiment, a company changed how it accounts for pension gains and losses, and investors value the company over three consecutive reporting periods. Results indicate that investors gradually forget to adjust for the accounting change over time under the current approach used to disclose accounting changes. These effects are mitigated in post-change periods when investors receive full disclosure of the current effect of the prior accounting change, and to a lesser extent when investors receive a disclosure that includes a simple non-quantitative disclosure that the accounting change occurred. Supplemental analyses indicate that investors rely more on memory-aiding disclosures as the time delay between valuation judgments increases.
AB - U.S. GAAP and IFRS require full disclosure of the effects of an accounting change in the year the change is made, but not in future years. However, some accounting changes have multi-period effects. We conduct an experiment to examine whether investors forget to adjust for an accounting change in periods subsequent to the change, and examine the effectiveness of interventions designed to mitigate that tendency. In the experiment, a company changed how it accounts for pension gains and losses, and investors value the company over three consecutive reporting periods. Results indicate that investors gradually forget to adjust for the accounting change over time under the current approach used to disclose accounting changes. These effects are mitigated in post-change periods when investors receive full disclosure of the current effect of the prior accounting change, and to a lesser extent when investors receive a disclosure that includes a simple non-quantitative disclosure that the accounting change occurred. Supplemental analyses indicate that investors rely more on memory-aiding disclosures as the time delay between valuation judgments increases.
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U2 - 10.1016/j.aos.2017.03.002
DO - 10.1016/j.aos.2017.03.002
M3 - Article
AN - SCOPUS:85017407890
SN - 0361-3682
VL - 57
SP - 52
EP - 72
JO - Accounting, Organizations and Society
JF - Accounting, Organizations and Society
ER -