Handbook on the Financial Reporting Environment

Edited by Weili Ge, Moss Adams Endowed Professor of Accounting, Michael G. Foster School of Business, University of Washington, Allison Koester, Dean’s Research Fellow Associate Professor of Accounting, McDonough School of Business, Georgetown University and Sarah McVay, William A. Fowler Endowed Professor of Accounting, Michael G. Foster School of Business, University of Washington, USA

• ContentsIntroduction to the Handbook on the Financial Reporting Environment xviiiWeili Ge, Allison Koester and Sarah McVayPART I INFORMATION GENERATIONSection 1.1 Mandatory Disclosure1 The role of standard setters in financial reporting 3Christine Botosan, Derek Christensen, Michael Durney, Kurt Gee andCassie Mongold2 Investments in the financial reporting process 15Maria Khrakovsky and Nemit Shroff3 Managers’ financial reporting incentives 35David Burgstahler and Elizabeth Chuk4 Managers’ tools to meet earnings management incentives 46Kalash Jain and Doron Nissim5 The role of the human element: managerial characteristics and thefinancial reporting environment 67Weili Ge, Katie Lem and Keehea Moon6 Financial reporting effects of tax planning and execution 85Allison Koester, Terry Shevlin and Ryan WilsonSection 1.2 Voluntary Disclosure and Communication Channels7 Alternative performance measures 117Sarah McVay, Edgar Rodriguez-Vazquez, Sara Toynbee and BenjaminC. Whipple8 Management guidance 141Mei Feng and Lian Fen Lee9 Managers’ channels of communication 158Dawn A. Matsumoto and Gregory S. MillerSection 1.3 Widening the Scope of Assessed Performance10 Environmental impact disclosures 181Peter Easton, Rachna Prakash, George Ruch and Gary TaylorPART II INFORMATION VALIDATION AND MONITORING11 The role of the board on corporate reporting 205Gaizka Ormazabal12 The role of external auditors in the financial reporting process 224Lauren M. Cunningham and Sarah E. Stein13 The role of regulators in financial reporting 249Jonas Heese14 Institutional factors: political economy, legal systems, and social norms 268AJ Yuan Chen and T.J. WongPART III USERS’ INFORMATION INTEGRATIONSection 3.1 Putting it all together15 Information processing costs 290Elizabeth Blankespoor and Ed deHaanSection 3.2 Information intermediaries as users and monitors16 The role of financial reporting in debt markets 304Matthew A. Phillips and Regina Wittenberg-Moerman17 Wall Street analysts: frenemies of both investors and managers 329Mark Bradshaw and Andrew C. CallSection 3.3 Assessing firm value18 Value investing: integrating theory and practice 349Charles M.C. Lee19 Market efficiency with costly information 377Charles M.C. LeePART IV BRIDGING RESEARCH AND PRACTICE20 The financial reporting environment from a practitioner’s perspective 391Crystal Finkelstein and Christina Nichols

‘An essential guide to today’s financial reporting ecosystem. This Handbook bridges academic insight and practical relevance, clearly illustrating the importance of financial information and how it is generated, validated, and used in real-world decisions.’