Abstract

Unfaithful disclosure causes decline in accounting information credibility and transparency, which eventually have a negative effect on capital market. Therefore, it is important to identify accounting information determinants that could predict and explain the possibility of unfaithful disclosure. This research intends to find whether financial statement comparability, which is one of qualitative accounting information attribute, is associated with unfaithful disclosure designation. Financial statement comparability is known to reduce information asymmetry between managers and information users, thus increases investor protection. In addition, unfaithful disclosure designation indicates poor disclosure quality which will lead to greater information asymmetry. However, unfaithful disclosure designation could be caused by simple mistake, uncertainty of corporate environment or qualitative aspect of misreporting that can not be reported in monetary units in financial statements. In other words, it is not too obvious to expect a negative association between financial statement comparability and unfaithful disclosure even for firms with high financial statement comparability or low information asymmetry. This study uses the sample consisted of 14,139 firm－year observations from 2002 to 2014. First, we find a significant and negative association between financial statement comparability and unfaithful disclosure designation. Second, financial statement comparability is negatively correlated to the level of frequency and severity of misreporting. Third, the duration until detection tends to be shorter for firms with high financial statement comparability. Our results remain robust after considering various endogeneity concerns. Overall, this study find that financial statement comparability among firms could provide useful predictive information when managers have intention to behave opportunistic and could be utilized to protect investors.

Keywords

• Unfaithful Disclosure
• Accounting Comparability

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