The Impact of Auditor Association on Client Multi-Venue Disclosure Transparency

We investigate the issue of duplicate disclosures of a common accounting issue in audited financial statements and the unaudited Management Discussion and Analysis (MD&A) sections of annual 10-K filings. We do so to address whether the degree of auditor association with client public disclosures affects the transparency of these disclosures. Despite different, but similar, disclosure criteria for the two venues, we note significantly lower disclosure frequencies for presumed LIFO liquidations in the MD&A than in the financial statement footnotes. Furthermore, none of the audit reports for the companies examined contained explanatory language to indicate that auditors considered these disclosure-tendency differences to be material inconsistencies as defined in SAS Nos. 8 and 118. We discuss how the wording of the applicable auditing standards may cause the noted disclosure differences, indicating a need to clarify further auditors' responsibilities regarding other information in documents containing audited financial statements.