When managers have discretion over what content to include in financial reporting, it can have one of two impacts.
On the one hand, giving managers greater discretion over financial reporting can provide more informative financial statements.
On the other hand, it could bias financial reporting if managers use that discretion to withhold relevant information.
So how do managers respond when regulators impose financial reporting restrictions using generally accepted accounting principles (GAAP)? Research by Aaron Roeschley and colleagues finds that managers respond to GAAP restrictions through a workaround solution.
That is, they provide additional voluntary disclosure to complement their GAAP-complaint formal reporting. The result is incremental management guidance and more readable management discussion and analysis.
Read more about Aaron’s research here:
