The Impact of the Disclosure of Non-GAAP Earnings in Australian Annual Reports on Non-Sophisticated Users
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The disclosure of non-GAAP earnings in Australian annual reports has risen steadily in recent years. These non-statutory earnings measures are generally disclosed in the unaudited section of the annual report and are not consistent with statutory profit as defined under generally accepted Australian accounting standards (GAAP). Recent research conducted in the United States has provided evidence that non-sophisticated investor decisions are influenced by the presence and prominence of non-GAAP earnings information. Further evidence suggests that investor perception changed after non-GAAP earnings disclosures became subject to regulation in that jurisdiction. Australia has high investor participation rates by international standards, including investors operating self-managed superannuation funds, resulting in a significant number of active individual investors. This study employs an experimental design to investigate the impact on non-sophisticated investors of the reporting of non-GAAP earnings information in addition to GAAP earnings information in Australian annual reports. The results of this study show a positive association between the prominent disclosure of non-GAAP earnings information and non-sophisticated investor reliance on this information. These results provide important evidence to Australian regulators as these narrative disclosures are not subject to regulation, in contrast to the United States where mandatory regulation has been in place since 2003.
Australian Accounting Review
© 2014 CPA Australia Ltd (CPA Australia). This is the peer reviewed version of the following article: The Impact of the Disclosure of Non-GAAP Earnings inAustralian Annual Reports on Non-Sophisticated Users, Australian Accounting Review, Volume 24, Issue 3, September 2014, Pages 207–217, which has been published in final form at https://doi.org/10.1111/auar.12034. This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Self-Archiving (http://olabout.wiley.com/WileyCDA/Section/id-828039.html)
Auditing and Accountability
Sustainability Accounting and Reporting