Can Financial Statement Comparability Mitigate the Adverse Impacts of Financial Reporting Complexity? Evidence from Hedge Accounting
Yao-Lin Chang/Department of International Business, National Taipei University of Business
Chi-Chun Liu/Department of Accounting, National Taiwan University
Chun-Yang Lin/Department of Accounting, National Taiwan University
Abstract
Financial reporting complexity impairs users’ ability to interpret and apply accounting information effectively. Despite ongoing simplification efforts by standard setters, concerns persist regarding its adverse impacts on decision-making quality. Focusing on hedge accounting, this study examines whether financial statement comparability helps users overcome such complexity, particularly in the context of analyst earnings forecasts. We begin by documenting the adverse impacts of hedge accounting complexity and then assess whether comparability mitigates these challenges. The results show that analysts produce less accurate and more dispersed forecasts for firms applying hedge accounting. However, greater comparability significantly improves forecast performance, underscoring its critical role in helping analysts navigate complex financial reporting environments. Our findings suggest that comparability, an enhancing qualitative characteristic, serves as an effective mechanism for alleviating the adverse impacts of reporting complexity. These insights have important policy implications as regulators continue their efforts to simplify accounting standards.
Keywords
Financial reporting complexityAccounting reporting complexityFinancial statement comparabilityHedge accounting
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