The Relative Influences of Changes in Officers and Auditors on Annual Report Textual Disclosures

We use changes in firm officers and external auditors to examine the relative influences of these parties on annual report textual disclosures. Using a sample of public companies that file XBRL-tagged financial statements with the SEC between 2011 and 2018, we find that changes in chief executive officers (CEOs), chief financial officers (CFOs), and external auditors are associated with significant changes in textual disclosures in both MD&A and the footnotes. Hierarchically, changes in CEOs have the smallest influence on MD&A and the footnotes. Although changes in CFOs and external auditors generally have comparable influences on MD&A, changes in external auditors have a greater relative influence on the footnotes. We additionally find that changes from a lower quality to a higher quality external auditor are associated with the greatest changes in both MD&A and footnote disclosures. Changes in CFOs and external auditors appear to have the greatest influences over MD&A disclosures for smaller firms, but the auditor's significant influence over the footnotes is pervasive across small and large firms. Our findings inform the ongoing discussions at the SEC and FASB on improving annual report disclosures and highlight the significant influence that external auditors have over disclosures in the annual report