Professors propose new measure of accounting complexity

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Apr 20, 2017

On April 20, 2017, the Social Science Research Network (SSRN) released a paper written by accounting professors, Rani Hoitash of Bentley University, and his brother Udi Hoitash of Northeastern University, which proposes a new measure of accounting reporting complexity (ARC) based on the count of accounting items (XBRL tags) disclosed in 10-K filings.

The preparation and disclosure of more accounting items is complicated because it requires greater knowledge of authoritative accounting standards. This aspect of complexity can increase the likelihood of mistakes, incorrect application of GAAP, and can ultimately lead to less credible financial reports. Consistently, we find that ARC is associated with a greater likelihood of misstatements and material weakness disclosures, longer audit delay, and higher audit fees.

Review the paper on the SSRN's website.

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