This study empirically examines perceptions of environmental report believability based on a firm's relative performance and level of assurance obtained on environmental activities under the recently clarified and recodified attestation standards in the United States.
The paper uses a 2 × 3 between-subjects experiment to identify differences in 153 non-expert environmental report users' perceptions of report believability based on positive or negative firm performance and (level of) assurance provided by an accounting firm.
Results show a main effect in that negative performance reports are perceived to be more believable than positive performance reports, as driven by negative performance reports being significantly more believable when no assurance is present. The firm performance effect is eliminated once limited or reasonable assurance is provided. Further, positive performance reports with limited, but not reasonable, assurance are perceived to be more believable than reports without assurance. No differences are identified within the negative performance condition.
Limited assurance might be used as an impression management tool to enhance the believability of positive performance environmental reports. Users, practitioners, and standard-setters should also be aware that users might believe environmental reports are assured, even when no such assurance has been provided.
This paper examines the impact of assured environmental reporting on users that review firms' environmental reports outside of a shareholder/investor role. The study also demonstrates conditions in which firm performance and assurance impact perceptions of report believability.
This study is based on the first author’s dissertation. Both authors wish to thank the dissertation committee for their time and valuable input: Bowe Hanson, Velina Popova, Sarah Stein, and Kevin Carlson. We also appreciate the helpful comments of Charles Boster, Matt Hayes, Porschia Nkansa, Josette Pelzer, Andrea Sheetz, Ian Twardus, Joe Ugras, Ally Zimmerman, and workshop participants at American University, John Carroll University, and Virginia Tech. We also thank participants at the American Accounting Association’s 2018 Annual Meeting for their helpful comments. Mark is also grateful for financial support provided by Virginia Tech’s Pamplin College of Business and the AICPA Foundation’s Accounting Doctoral Scholarship (ADS). We also appreciate the helpful suggestions from two anonymous reviewers.
Sheldon, M.D. and Jenkins, J.G. (2020), "The influence of firm performance and (level of) assurance on the believability of management's environmental report", Accounting, Auditing & Accountability Journal, Vol. 33 No. 3, pp. 501-528. https://doi.org/10.1108/AAAJ-11-2018-3726Download as .RIS
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