Title

Qualitative financial statement disclosures : legal and ethical considerations

Document Type

Journal article

Source Publication

Business Ethics Quarterly

Publication Date

7-2004

Volume

14

Issue

3

First Page

433

Last Page

451

Abstract

There is a long-running debate among legal scholars regarding the propriety and enforceability of SEC attempts to mandate disclosures of antisocial or illegal corporate activities that do not materially impact a company's financial statements. This debate was recently revived by the issuance of SEC Staff Accounting Bulletin 99, Materiality in Financial Statements (SEC 1999), which suggests that quantitatively immaterial information relating to unlawful transactions or regulatory non-compliance should be considered for disclosure. This issue has important implications for the accounting profession, although it has generally been ignored in the accounting literature. This paper reviews legal and ethical considerations raised by the issue of qualitative disclosures, and also presents the results of a preliminary empirical test of the impact of such disclosures on financial statement users' judgments. The results of this study indicate that investors consider the nondisclosure of immaterial illegal acts to be unethical, and reject suggestions that such information lacks moral intensity. The results also suggest that immaterial illegal acts have a significant effect on investors' perceptions of the quality of corporate management and the likelihood of investment in a company. This effect was more pronounced when the illegal act was combined with self-dealing on the part of corporate executives.

DOI

10.5840/beq200414328

Print ISSN

1052150X

E-ISSN

21533326

Publisher Statement

Copyright © Society for Business Ethics 2004

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Recommended Citation

Shafer, W. E. (2004). Qualitative financial statement disclosures: Legal and ethical considerations. Business Ethics Quarterly, 14(3), 433-451. doi: 10.5840/beq200414328