Analysts Forecast Accuracy And The Presentation Of A Mandated Accounting Change

This paper examines whether the presentation method of a mandated accounting change affects financial analysts forecasts. SFAS 96, Accounting for Income Taxes (FASB, 1987), allowed companies to use either the cumulative effect or the retroactive restatement method to account for the adoption of the change. In addition to the comparison of the two presentation methods, a regression model was developed to include the number of analysts making forecasts, the dispersion of their man forecast, prior disclosure of the accounting change, and the relative year of adoption. Analysts forecasts for companies using the two different methods were compared over several periods to determine if the alternative presentations enhanced forecast accuracy and if that was dependent on the forecast horizon. While some of the covariates were significantly correlated, the results indicate that analysis gained no forecast accuracy advantage from having the increased disclosure.