The details matter: SEC regulatory guidance and informativeness in non-GAAP disclosure decisions
Abstract
Purpose
This paper aims to examine how managers make non-generally accepted accounting principles (GAAP) exclusion decisions depending on the regulatory guidance provided and their motivations. Guidance detail is a double-edged sword: resolving uncertainty but risking rule-based compliance over principled judgment.
Design/methodology/approach
This paper uses the context of non-GAAP measures in reporting, given the history of Securities and Exchange Commission changes in guidance detail. Drawing on theories of epistemic motivation and process accountability, this paper manipulates the goal of management (informativeness vs. opportunism) and guidance detail to examine effects on management decisions to exclude an ambiguous charge.
Findings
The 2×2 between participants experiment with 132 managers reveals that more detailed guidance increases likelihood of exclusion of an ambiguous charge. This paper further finds that this exclusion is more likely when management is given an informativeness goal, a result of a mediating effect of epistemic motivation. However, these findings only hold at low levels of process accountability.
Practical implications
The findings regarding the psychological concepts recognize the influence of perceived decision uncertainty by suggesting how managers respond to the level of regulatory guidance detail, offering regulators and auditors a basis for understanding and anticipating managerial reporting choices. Also, awareness of heightened epistemic motivation under the informativeness goal provides a nuanced practical understanding of non-GAAP decision drivers. Finally, the finding that effects are more pronounced for managers with lower process accountability highlights the significance of organizational accountability structures in guiding managerial choices, which can inform board-level governance and control decisions.
Originality/value
Pragmatically, this paper finds that detailed guidance leads to more appropriate exclusion decisions under a goal of informativeness but finds no such evidence where the goal is opportunism. No prior study has examined how the level of detail in guidance affects managers’ disclosure choices.
Keywords
Acknowledgements
The authors thank Ted Christensen, Robyn Maroney, Don Moser, Vernon Richardson, participants of the A-State Monthly Faculty Research Meeting [February 2022], ARCPA Arkansas Accounting Research Consortium [August 2021], Accounting Workshop for Experiments doctoral forums [June 2017, April 2018 and May 2019], students in the University of Melbourne’s 2019 Behavioral Research in Accounting class and participants of the University of Melbourne’s PhD seminars [July 2017 and March 2020] for their helpful comments. This research is supported by an Australian Government Research Training Program (RTP) Scholarship. The authors are also grateful to the Faculty of Business and Economics at the University of Melbourne for their financial support. This research project was approved by the Human Research Ethics Committee of The University of Melbourne.
Data availability: Please contact the first author.
Citation
Desai, H. and Davern, M. (2024), "The details matter: SEC regulatory guidance and informativeness in non-GAAP disclosure decisions", Meditari Accountancy Research, Vol. ahead-of-print No. ahead-of-print. https://doi.org/10.1108/MEDAR-04-2023-1975
Publisher
:Emerald Publishing Limited
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