Additional Evidence on the Need for Disclosure Reform

Over the past 15 years, there has been intermittent criticism of the diversity in interpreting the Statement of Financial Accounting Standards 5, which has been the governing authoritative pronouncement on disclosure of certain events. Auditors, engineering managers, marketing managers, and business school graduate students participated in a study designed to provide evidence related to the possible discrepancies between the interpretations of auditors and those of managers. The subjects were asked to provide numerical interpretations for 30 common verbal expressions of uncertainty. The results show that additional disclosure reform is needed. For example, within a reasonable range, the subjects agreed on the numerical translations of such expressions as remote, reasonably possible, and probable; however, a problem arises with the classification of all uncertainty into these 3 categories.