How Does Management Voluntary Disclosure Behavior Influence Auditors’ Judgments?

Abstract

Forward-looking information, often used by auditors to evaluate complex estimates and form conclusions about going-concern audit report modifications, is commonly disclosed voluntarily by U.S. public companies. We experimentally examine how this disclosure behavior affects auditors’ skepticism toward such information. Prior research has shown that investors and analysts frequently interpret voluntarily disclosed forward-looking information as credible. We demonstrate that auditors, in contrast, exhibit greater skepticism toward forecasted information that has been voluntarily disclosed (vs. mandatorily disclosed or held privately) because of their reduced trust in management, even when the forecasts align with prior year trends (vs. being more optimistic). Our results suggest that a manager's decision to disclose, rather than the disclosure content itself, leads to increased auditor skepticism. Our findings have implications not only for audit outcomes, but also for manager disclosure behavior, as increased auditor scrutiny could discourage future voluntary disclosure.