ACCTG 502 | Session 8 | Audited financial reporting and voluntary disclosure as complements: A test of the Confirmation Hypothesis

ACCTG 502 | Session 8 | Audited financial reporting and voluntary disclosure as complements: A test of the Confirmation Hypothesis - 2012 Ray Ball, Sudarshan Jayaraman, Lakshmanan Shivakumar Introduction: The article examines the Confirmation Hypothesis, which suggests that audited financial reporting and voluntary disclosure serve as complements rather than substitutes in providing information to investors. The authors contend that independent verification of financial results promotes managerial honesty and accuracy in voluntary disclosures, thereby boosting their credibility. Through empirical analysis, they discover that firms that invest more in audit verification also produce more informative and frequent management forecasts, and that markets respond more strongly to these forecasts, indicating a complementary relationship between the two information channels.