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This study investigates how disclosure of the board of directors’ leadership and role in risk oversight (BODs oversight disclosure) influences investors’ judgments when information on risk exposures is disclosed. The theoretical lens through which we examine this issue involves negativity bias. Sixty-two stock market investors who engage in the evaluation and/or investment of stocks on a regular or professional basis participated in our study. Our results reveal that the addition of BODs oversight disclosure (positive information) does not carry significant weight on investor judgments (i.e., attractiveness and investment) when financial statement disclosures indicate a high level of operational and financial risk exposures (negative information). In contrast, under the condition of a low level of risk exposures, BODs oversight disclosure causes investors to assess higher risk in terms of worry, catastrophic potentials and unfamiliarity about risk information and, in turn, make less favorable investor judgments. Our findings add to the literature on negativity bias and contribute to the debate on the usefulness of disclosures about risk.

According to the SEC, the proposed roadmap for adopting principles-based International Financial Reporting Standards (IFRS) is still a priority. The adoption of IFRS will ultimately demand greater emphasis on practitioner judgment (Mintz, 2010). This chapter focuses on the need for building the judgment skills of the practitioner. Our methodology follows a three-step process. We start with accounting standards, reviewing similarities and differences between “rules-based” and “principles-based” standards and conclude that, while applying any standard requires judgment, applying principles-based standards requires more judgment. We then focus on preparer incentives that can influence this requisite judgment. We use the “fraud triangle” to analyze the influence of incentives on judgment under each standards setting approach. Our third and most important step involves equipping practitioners to make judgments in the presence of incentives. We present and discuss a model that considers economic, social (legal), and ethical dimensions for making principled judgments in the presence of incentives and advocate-improved education for accountants in implementing that model.