The Communicative Effectiveness of Consistency Exceptions.

Abstract The results of the empirical research reported herein suggest that the consistency exception opinion does not appear to have information content for most investors. Investors either do not or are unable to deal with the subtle differences in the quality of the accounting data tested in this research. Some evidence which suggests that investors do utilize materiality criteria in examining data was found. The weakness of the evidence, however, makes this conclusion suspect. The evidence concerning the perceived information content of annual reports is mixed. In examining the annual report price profile, one finds no statistical significance on a weekly basis and infers no information content. This is consistent with the fact that other data sources may preempt the data disclosed through the annual report medium. Yet, on further examination of the annual report price profile, one finds an unusual plateau which suggests information content. Additional research is needed to provide a more definitive answer in this area. Based on the evidence presented in this study, the current burgeoning empirical interest in what data investors need and how investors use data should receive increased impetus.