The paper examines the difference in the disclosure readability of SEC investigated firms and the population of firms traded in the USA. This study aims to further refine the obfuscation hypothesis and broader impression management theory.
The paper used quantitative cross-sectional analysis of archival data gathered from the SEC Accounting and Auditing Enforcement Release Archive and the SEC EDGAR database. A one-sample t-test was used to compare mean readability levels.
The paper provides empirical evidence to support the assertion that disclosures of the firms being investigated for “books-and-records” infractions are more difficult to read than the disclosure of the average publicly-traded firm in the USA.
First, the study did not make direct matched-pairs comparisons of the readability level. Second, the unique nature of the sample means that the results may not be generalizable. Further research is necessary to expand on this current work.
The paper includes implications for consideration by accounting standards setters, financial regulators and annual report readers.
This paper addresses an identified need to study the existence and degree of complexity and obfuscation in financial disclosures.
