Hoitash 2018 Measuring Accounting Reporting Complexity With XBRL

THE ACCOUNTING REVIEW American Accounting Association
Vol. 93, No. 1 DOI: 10.2308/accr-51762

January 2018
pp. 259–287
Measuring Accounting Reporting Complexity with XBRL

Rani Hoitash
Bentley University
Udi Hoitash
Northeastern University
ABSTRACT: We propose a new measure of accounting reporting complexity (ARC) based on the count of
accounting items (XBRL tags) disclosed in 10-K filings. The preparation and disclosure of more accounting items is
complicated because it requires greater knowledge of authoritative accounting standards. This aspect of complexity
can increase the likelihood of mistakes, incorrect application of GAAP, and can ultimately lead to less credible
financial reports. Consistently, we find that ARC is associated with a greater likelihood of misstatements and material
weakness disclosures, longer audit delay, and higher audit fees. In comparison to commonly used measures of
operating and linguistic complexity, the associations between ARC and these outcomes are more consistent, exhibit
greater explanatory power, and have stronger economic significance. These and additional validation and
robustness tests suggest that ARC more completely reflects accounting complexity. In addition, ARC exhibits several
advantageous properties, including across- and within-firm variation, availability for the universe of SEC filers, and a
direct connection to accounting, inherent in its derivation from detailed accounting disclosures. Finally, because it
relies on a comprehensive set of detailed accounting data, ARC broadly captures accounting complexity, while, at
the same time, it can be disaggregated into account-specific measures of complexity.
Keywords: accounting complexity; XBRL; disclosure quality; financial reporting quality; misstatements; internal
controls; audit fees; accruals.
JEL Classifications: M41; M43.

Data Availability: Data are available from sources identified in the paper. A similar version of ARC, based on
company XBRL filings that were downloaded directly from the SEC, is available at http://www.
xbrlresearch.com.
I. INTRODUCTION
S
tandard setters and regulators recognize that as accounting disclosures evolve to represent increasingly diverse and
complex business transactions, so does the difficulty to prepare and consume accounting reports (Securities and Exchange
Commission [SEC] 2006). To date, the consequences of accounting complexity are not clear and empirical proxies for
accounting complexity are limited. In this study, we develop and evaluate a new measure of accounting reporting complexity
(ARC) that is based on the count of accounting items disclosed in eXtensible Business Reporting Language (XBRL) 10-K filings.
We perform tests to validate this measure by comparing ARC to other proxies used in the literature to measure complexity. To
illustrate the robustness of ARC, we investigate its association with several proxies for financial reporting quality (FRQ).
The SEC’s Advisory Committee on Improvements to Financial Reporting (ACIFR; hereafter, SEC 2008) defines
accounting complexity as the difficulty for ‘‘preparers to properly apply generally accepted accounting principles in the U.S.
We thank Mark L. DeFond and Elaine G. Mauldin (editors) and two anonymous referees for insightful and constructive reviews that greatly benefited the
paper. We thank Ariel Markelevich, Pranav Ghai, and Alex Rapp from Calcbench for their invaluable research support. We also thank Michael Alles, Divya
Anantharaman, Jean Bedard, Jenna Burke, Roman Chychyla, Ronen Gal-Or, Amy Genson-Sheneman, Tim Gray, Karla Johnstone, Tien Hsieh, Alex Kogan,
Rachel Martin, Brian Mayhew, Rebekah Moore, Melissa Reville, Divesh Sharma, Joe Schroeder, Jay Thibodeau, Miklos Vasarhelyi, Terry Warfield, Arnie
Wright, Ari Yezegel, and participants of research workshops at the 2014 AAA Annual Meeting, Bentley University, Kennesaw State University, Northeastern
University, Rutgers, The State University of New Jersey, University of Wisconsin–Madison, and the Ph.D. reading group at Indiana University.
Supplemental material can be accessed by clicking the link in Appendix B.
Editor’s note: Accepted by Elaine G. Mauldin, under the Senior Editorship of Mark L. DeFond.
Submitted: August 2014
Accepted: April 2017
Published Online: April 2017
259
260 Hoitash and Hoitash
(U.S. GAAP) and communicate the economic substance of a transaction or event and the overall financial position and results
of a company.’’ Two sources of accounting complexity that are identified in the ACIFR (SEC 2008) report are: (1) standards
that are difficult to understand and apply, and (2) the volume and diversity of accounting standards. ARC concentrates on the
preparation complexity of the financial reports that is due to the amount and diversity of accounting information that firms
report in their 10-K filings.1
We use XBRL filings to construct ARC. XBRL is especially suitable for this task because under SEC (2009) rules, firms
must faithfully translate the financial statements and notes in their 10-K filings into XBRL.2 The measure we propose is based
on the count of XBRL accounting concepts (e.g., revenues, net inventory, raw materials) disclosed in 10-K filings.3 Each
accounting concept disclosed in the financial statements is prepared based on authoritative standards and regulations. We argue
that the preparation complexity of the financial reports increases with the number of disclosed accounting concepts because
preparers need to collect, categorize, store, and analyze more information, and this process requires broader and more in-depth
knowledge of authoritative accounting standards. Indeed, past research finds that task complexity increases with information
diversity (Steinmann 1976; Campbell 1988) and information load (Bonner 1994) and, as a result, judgment performance
declines (Bonner 1994). Accordingly, we predict that greater ARC will lead to less credible financial reports because it
increases the likelihood of errors and incorrect application of GAAP, which ultimately lowers FRQ.4,5
We compare ARC to two other categories of complexity. The first category of operating complexity includes the number
of business and geographic segments and the existence of foreign operations as measures of complexity. These operating
complexity measures are often used as control variables to proxy for accounting complexity in models of FRQ because they are
readily available in major databases. Several studies find that more segments and the existence of foreign operations are
associated with lower FRQ (e.g., Doyle, Ge, and McVay 2007b; U. Hoitash, R. Hoitash, and Bedard 2009). In contrast, other
studies do not find a significant association (e.g., Cao, Myers, and Omer 2012; Ogneva, Subramanyam, and Raghunandan
2007). A thorough review of the literature shows that operating complexity measures are included in 66.5 percent of internal
controls and audit fee models and are significant in 69.9 percent of these models. Further, operating complexity measures are
absent in 94.4 percent of restatement, accrual, and audit delay studies and, when included, are insignificant in 87.3 percent of
the models.6 Thus, despite strong priors, it is still unsettled whether complexity is indeed associated with lower FRQ, especially
when complexity is measured by segments and foreign operations.
The second complexity category is the linguistic complexity of financial reports, which is principally measured using the
Fog Index (Gunning 1952) or the length of 10-K filings to represent readability. Because linguistic complexity captures the
readability of the financial reports, prior studies primarily focus on the association between linguistic complexity and the
consumption of the reports by analysts and investors (Lehavy, Li, and Merkley 2011; Loughran and McDonald 2014; You and
Zhang 2009). Results of these studies generally confirm that linguistically complex (i.e., longer and less readable) financial
statements are more difficult to consume. However, our review of the literature shows that linguistic complexity measures are
not typically used in FRQ contexts, and it is unclear whether they can proxy for the preparation complexity of the financial
reports.
ARC belongs to a group of measures that directly rely on accounting information to measure complexity. These include
Plumlee (2003), who examines tax complexity, Peterson (2012), who examines the complexity of revenue accounts, and
Chang, Donohoe, and Sougiannis (2016), who examine the complexity of derivatives. Together, these novel studies
demonstrate that complexity is important in a variety of accounting domains, underscoring the need for a broad firm-level
measure of accounting complexity. When compared to measures in the other two categories, ARC has several important
advantages. First, because it is derived from accounting disclosures, ARC is more suitable for the examination of accounting
1
Conceptually, it is possible that firms will have diverse accounting information with accounting standards that are not complex. It may be possible to
develop a subjective assessment, or employ other means such as text analysis, to classify the complexity of each accounting standard. However, our
goal in this study is to use XBRL data to create a broad and objective measure that is easily replicable. Therefore, we chose not to subjectively classify
the complexity of each accounting standard.
2
XBRL provides a computerized language for financial reporting. Its advantage, relative to other data sources, is that information in the financial reports
can be read, extracted, and compared automatically by computers without human intervention.
3
The translation from traditional financial reports to XBRL relies on the U.S. GAAP Taxonomy, which is an electronic dictionary of business reporting
that defines tags to represent accounting concepts (Taxonomy tags). In cases where the Taxonomy fails to capture firm-specific financial reporting
concepts, firms are required to extend the taxonomy and create their own firm-specific tags (Extended tags).
4
We recognize that an incorrect application of GAAP can be intentional or unintentional and acknowledge that our design is not meant to disentangle
the two.
5
To streamline the exposition of this paper, we use FRQ to broadly discuss financial reporting quality proxies, as well as audit fees and audit delay. We
capture FRQ by examining the credibility of the financial reports using misstatements, internal control material weaknesses, and accruals quality.
6
Our review is based on all papers published between 2004–2014 in The Accounting Review, Journal of Accounting Research, and Journal of
Accounting and Economics. The final statistics are based on 123 studies (and 1,278 models) that examine restatements, material weaknesses, accruals,
audit delay, and audit fees. (See Table 1 in the Online Appendix 1 for more details, see Appendix B for the link.)
The Accounting Review

Volume 93, Number 1, 2018
Measuring Accounting Reporting Complexity with XBRL 261
outcomes. Second, ARC can be constructed for all SEC filers and is not limited to a select group of public companies. Third,
ARC’s reliance on all detailed 10-K data affords the necessary breadth to capture accounting complexity, while, at the same
time, allowing for disaggregation of the measure into granular account-specific measures of complexity. Finally, ARC can
capture changes in accounting complexity because it exhibits across- and within-firm variation.7
To construct ARC, we rely on detailed XBRL data from 2011–2014. Our sample includes 11,972 firm-year observations
covering a wide range of industries. On average, companies use 346 distinct XBRL tags (our ARC measure) in their financials.
We observe a positive and significant correlation between ARC and other complexity measures with the exception of the Fog
Index. The negative association with the Fog Index suggests that the two capture different aspects of complexity.
As a baseline validation test, we examine how each of the six measures of complexity (ARC, business segments,
geographic segments, foreign operations, Fog Index, and 10-K length) changes following significant economic events that
should give rise to accounting complexity. Accounting serves to translate a firm’s underlying economic activities, so an
accurate empirical proxy for accounting complexity should fluctuate with these events. We find that acquisitions, restructuring
activities, discontinued operations, new capital lease contracts, physical asset upgrades, new write-downs, new share issuance,
and new debt issuance are all positively associated with changes in ARC. The association with other complexity measures is
weaker and more sporadic. Further, while these events explain 10.6 percent of the variation in ARC, they only explain 0–3
percent of the variation in other complexity measures. These findings suggest that ARC is better suited to capture changes in
accounting complexity. In fact, descriptive data show that over 96 percent of firms experience a one-year change in the number
of disclosed XBRL tags, while only 10.3, 8.1, and 3.5 percent experience a change in the number of business segments,
geographic segments, and foreign operations activity, respectively.
Next, we test the prediction that ARC is inversely associated with FRQ. We find that ARC is associated with higher
misstatement likelihood,8 higher material weakness (MW) disclosure likelihood, longer audit delay, and higher audit fees. We
do not find a significant association between ARC and accruals quality. Other complexity measures experience less consistent
associations with FRQ. We also observe that in the misstatement, MW, and audit delay models, the explanatory power and
economic significance of ARC is substantially greater than other complexity measures. We further find that ARC captures
accounting complexity that partially encompasses, but is also incremental to, operating and linguistic complexity. Specifically,
we find that when ARC is removed from the models, the magnitude of the coefficients on operating and linguistic complexity
measures increase significantly. In addition, the portion of ARC not explained by other complexity measures exhibits
significant results in most models.
To further examine ARC’s robustness and to account for firm-specific confounding factors, we perform a change analysis.
Prior studies often fail to find an association between changes in operating complexity and changes in FRQ (e.g., Beck and
Mauldin 2014). Our results are consistent with prior literature suggesting that changes in operating and linguistic complexity
are generally not associated with changes in FRQ. In contrast, changes in ARC are positively associated with changes in FRQ.
Firm fixed effect regressions exhibit a similar pattern. This evidence further supports that ARC exhibits higher within-firm
variation and can more precisely capture changes in accounting complexity.
A distinctive feature of ARC relative to other measures of complexity is its direct link to accounting concepts. In other
words, ARC is not a black box and can uniquely be disaggregated into granular and more precise measures of accounting
complexity. Taking advantage of this, we predict that more complex disclosures in already complex accounts will be associated
with a higher likelihood of a misstatement or MW disclosure in these accounts. We examine the complexity of inventory,
derivatives, tax, and lease disclosures as captured by the number of XBRL tags in these accounts. We find greater likelihood of
a misstatement and MW disclosure in these accounts when they are more complex. Importantly, other complexity measures that
cannot capture such nuances are mostly insignificant in this analysis. These findings demonstrate the flexibility to disaggregate
ARC into granular measures of complexity, as a research question demands, and also provide an additional validation of the
measure. To demonstrate the usefulness of ARC to additional domains and as a moderating variable, we revisit prior research
and find that audit committee financial expertise is more beneficial to firms with complex accounting. Finally, extensive
robustness tests suggest that ARC is not sensitive to alternative construction approaches.
Because ARC is based on the amount of disclosed accounting information, it may proxy for higher disclosure quality. Indeed,
a recent study (Chen, Miao, and Shevlin 2015) proposes and tests a measure of disclosure quality (DQ) based on the level of
disaggregation of accounting disclosures. This study shows that DQ is associated with higher forecast accuracy and lower
dispersion. However, the study does not examine the association of DQ with the FRQ measures that we examine. To the extent
7
We recognize that accounting disclosures and, therefore, accounting complexity are inherently influenced by economic activities and, thus, we do not
propose that ARC is separate from operating complexity. We focus on ARC because it is a more complete and precise measure of accounting
complexity and because statutory requirements allow us to capture detailed accounting disclosures, whereas capturing the details of operating
complexity is less feasible with public data.
8
We capture the misstatement period rather than the restatement disclosure year.

that both ARC and DQ capture the amount of disclosure, the two should be positively correlated. However, one important
distinction between DQ and ARC is that DQ is based on around 145 Compustat variables, while ARC is constructed based on a
broad set of information that includes all monetary accounting disclosures in Item 8 of the 10-K filings. We find that the
correlation between the two measures is negative. When we include DQ in our models, ARC exhibits similar results. Interestingly,
we find that DQ is associated with lower MW disclosure likelihood and higher audit fees, but is not significantly associated with
misstatements, audit delay, and accruals quality. Combined, these findings suggest that DQ and ARC depict different constructs.
This study contributes to the accounting literature in several ways. First, we extend prior research that relies on accounting
information to measure complexity (Plumlee 2003; Peterson 2012; Chang et al. 2016) by developing and validating a new
accounting-based measure of accounting reporting complexity. Using a complexity measure constructed from accounting
disclosures is important because researchers often rely on theory connecting accounting complexity to accounting outcomes.
Compared to other complexity measures, the association between ARC and FRQ is more consistent, exhibits greater explanatory
power, and has stronger economic significance. Second, similar to other common measures of complexity, the proposed measure
is intuitive, objective, and can be easily constructed for all SEC filers. Third, ARC can be disaggregated into account-specific
measures of complexity that can be used by academics in different contexts. Fourth, ARC exhibits large across- and within-firm
variation and captures changes in accounting complexity. Finally, we demonstrate how ARC can be used as a moderator and
encourage researchers to use ARC as a control variable or as a moderating/mediating factor in their research.
We recognize that accounting complexity can be measured in many ways and note several limitations of ARC. First, ARC
does not attempt to capture all aspects of accounting complexity. Instead, it focuses on accounting reporting complexity.
Second, while we use XBRL to capture disaggregated publicly available accounting information, we cannot observe the
transactions that underlie the accounting concepts. Certain concepts may encompass a large volume of transactions and,
therefore, be more complicated to compile. Third, we recognize that we are unable to observe the quality of the information
system, which can influence both XBRL disclosures and FRQ. Finally, the proposed measure captures only four years of data.
Nevertheless, we believe that the newness of these data and the desirable properties of XBRL over other data sources is a
worthwhile forward-looking approach that can contribute to future research.
II. BACKGROUND AND HYPOTHESES DEVELOPMENT

The ACIFR (SEC 2008) notes that complexity is ‘‘the state of being difficult to understand or apply’’ and highlights that
complexity of financial reporting involves the difficulty to understand, prepare, audit, and analyze the financial reports. We
propose a measure that focuses on the preparation complexity of the financial reports. We rely on the ACIFR’s (SEC 2008)
definition of accounting complexity as the difficulty for ‘‘preparers to properly apply generally accepted accounting principles
in the U.S. (U.S. GAAP) and communicate the economic substance of a transaction or event and the overall financial position
and results of a company.’’ Accounting-based measures of complexity are not widely available and, therefore, prior research
has primarily used operating or linguistic measures to proxy for complexity. The measure we propose is based on detailed
accounting disclosures in eXtensible Business Reporting Language (XBRL) 10-K filings.
XBRL Regulation and Related Research

In 2009, the SEC passed the Interactive Data to Improve Financial Reporting rule, requiring companies to provide
financial statement information in an XBRL format (SEC 2009). This rule was phased in over three years based on companies’
filing status. In the first year, SEC registrants were required to file their annual financial statements in XBRL, and the notes
were added to this scope in the subsequent year. Accelerated filers submitted XBRL financial statements and notes in 2011 and
were followed by most other public firms in 2012. The XBRL filing requirement prompted research on the accuracy of XBRL
filings relative to traditional filings and to data collected by aggregators such as Compustat (Debreceny, Farewell, Piechocki,
Felden, and Gräning 2010; Du, Vasarhelyi, and Zheng 2013; Roohani and Zheng 2011; Boritz and No 2013; Chychyla and
Kogan 2015). Studies detect some inconsistencies in the monetary values of certain items, but also document an improving
trend in that respect.9 Furthermore, these studies highlight that XBRL filings include more detailed disclosures than the
information provided by traditional data aggregators.
XBRL U.S. GAAP Taxonomy

XBRL relies on a taxonomy, which is an electronic dictionary of business reporting that defines tags that should be used to
represent accounting concepts such as ‘‘revenues.’’ The use of these standard tags to describe similar concepts enables the
9
This is not a concern in our study because we focus on the volume of information disclosed and not on the disclosed values.

comparison of accounting information across companies. This comparability is one of the main objectives of XBRL.
Nevertheless, the taxonomy cannot always account for every possible firm-specific accounting concept under U.S. GAAP. In
such cases, the XBRL standard adopted by the SEC allows companies to extend the taxonomy and create their own firm-
specific tags. The need to extend the taxonomy in this way arises from the SEC’s requirement that filers maintain tight
alignment between the continued reporting of traditional filings on EDGAR and their XBRL filings (SEC 2010). Companies
must make every attempt to match their accounting concepts to standard tags in the XBRL U.S. GAAP Taxonomy. Companies
can create extensions only if there are no suitable matches in the taxonomy.
Proposed Measure of Accounting Complexity

Firms with multifaceted economic activities need to use more accounting concepts to disclose their activities in the
financial reports. In XBRL translated financial statements and notes, each accounting concept is represented by an XBRL tag
and each tag refers to authoritative accounting standards and/or regulations. For example, the taxonomy tag ,us-
gaap:SalesRevenueNet. refers to Section S99 in the Financial Accounting Standards Board (FASB) codification.10 As a result,
a greater number of XBRL tags results in the need for preparers to collect, categorize, store, and analyze more information, and
this process necessitates a greater knowledge of GAAP. The ACIFR (SEC 2008) report suggests that ‘‘the vast number of
formal and informal accounting standards, regulations, and interpretations, including redundant requirements, make finding and
evaluating the appropriate standards and interpretations challenging.’’ Using volume and diversity of information to capture
complexity is supported by extant literature that examines task complexity.11 Campbell (1988) suggests that task complexity
increases with information load and information diversity. Bonner (1994) finds that judgment performance declines as task
complexity rises. Accordingly, we put forward a measure that captures the number of distinct XBRL tags used by firms and
propose that this measure reflects accounting reporting complexity (ARC).
We recognize that managers can intentionally introduce complexity by increasing the number of XBRL tags, or through
intentionally obfuscating the financial reports by incorrectly using extended tags instead of taxonomy tags (Debreceny et al.
2011; Guragai, Hunt, Neri, and Taylor 2017). Nevertheless, the approach we use to measure ARC partially mitigates these
concerns for two reasons. First, firms are required to submit financial reports that are audited and file similar reports in XBRL.
Therefore, firms cannot intentionally complicate the XBRL reports without also changing their traditional reports. Second, it is
possible that management chooses to obfuscate information and use extended XBRL tags instead of taxonomy tags.
Essentially, this entails substituting a taxonomy tag for an extended tag. This is less likely to impact ARC because ARC is
based on the count of all distinct XBRL tags.12
Categories of Complexity Measures

The three common categories of complexity used in accounting research are operating, linguistic, and accounting-based
complexity. Complex operations increase the difficulty to translate economic activities into accounting disclosures. Yet because
detailed disclosures of firm operations are not widely available, researchers often rely on observable measures of operating
complexity. The most common are the number of business and geographic segments and the existence of foreign operations. A
higher number of business segments often suggests the presence of more complicated economic operations because segments
typically have different products, services, processes, and/or customers, and each segment often earns revenues and incurs
expenses. In addition, because segments often transcend industries, knowledge of accounting standards across industries is
needed to disclose segment information. Similarly, companies with foreign operations or international segments are required to
report and reconcile their overseas operations, further complicating the preparation of the financial reports. While these
measures capture aspects of operating complexity that are likely linked to accounting complexity, they do not experience
significant across- and within-firm variation and are not directly based on accounting disclosures.
ARC subsumes a portion of complexity that is captured by common operating complexity measures. Reportable segments
data are captured by XBRL tags. Unlike a measure of the number of reported segments, ARC experiences greater variation as it
fluctuates with the amount of disclosed segment information and not only with the number of segments disclosed. Similarly,
accounting information that pertains to foreign operations is captured in greater detail by ARC. In addition, ARC also captures
the disclosure of other accounting information (e.g., lease, derivative, inventory, and tax accounting) that is not captured by
operating complexity measures.
10
Online Appendix 2 further explains the link between ,us-gaap:SalesRevenueNet. and the FASB codification.
11
Financial statement preparers have similar views, stating, ‘‘The complexity of financial standards and the volume of mandated disclosures are the most
significant contributors to the issue of disclosure overload and complexity’’ (KPMG 2011).
12
To further address this issue, in the robustness tests in Section IV, we separate between taxonomy and extended tags and report results using complexity
measures that are based on each.

The second category, linguistic complexity, is becoming more prevalent in accounting research. The most commonly used
measure of linguistic complexity is the Gunning (1952) Fog Index, followed by the length of 10-K filings (Loughran and
McDonald 2014). These measures capture the readability of the financial reports. Accordingly, studies using these measures
have predominantly focused on financial statement users. Miller (2010), Lawrence (2013), and Biddle, Hilary, and Verdi
(2009) all focus on shareholder investment decisions, showing lower trading volume and lower investment efficiency when the
Fog Index is higher and the financial reports are longer. Lehavy et al. (2011) and Bozanic and Thevenot (2015) focus on
analysts and find that less readable reports are associated with poor analyst performance. Taken together, these studies suggest
that less readable reports are more difficult to consume. The association between linguistic complexity and accounting
complexity is not immediately clear because measures of linguistic complexity capture the written narrative of the financial
reports and often do not distinguish between accounting and non-accounting information. It is possible that accounting
complexity is reflected in less readable reports because of the difficulty to use simple and concise language to describe complex
activities. In contrast, the literature suggests that it may not be the underlying economics that lead to less readable reports, but
rather management incentives to obfuscate bad news (Li 2008). In that case, linguistic complexity will not accurately reflect
accounting complexity.
The third category, which the proposed measure belongs to, relies on accounting information to measure complexity.
Plumlee (2003) uses changes imposed by the Tax Reform Act of 1986 and finds that analysts’ forecast errors increase with
more complex tax law changes. Peterson (2012) uses the number of words and recognition methods in revenue-recognition
disclosures and finds that revenue-recognition complexity increases the likelihood of revenue-related restatements. Chang et al.
(2016) find less accurate and more dispersed earnings forecasts among firms that begin using derivatives. Each of these studies
concentrates on a specific account and employs a distinct approach for measuring complexity in that account. Together, these
studies demonstrate the importance of accounting complexity. While ARC belongs to this complexity category, it is unique in
that it relies on all monetary accounting disclosures that appear in Item 8 of the 10-K filings and can serve as a broad firm-level
measure of accounting complexity.
Hypotheses
Accounting complexity is thought to increase the likelihood of poor financial reporting quality (FRQ) because the
preparation of voluminous and diverse information increase the likelihood of errors and incorrect application of GAAP. Yet
commonly used proxies for complexity do not consistently display this association. A review of published research reveals that
the most common proxies for operating complexity are segments and an indicator for foreign operations. Linguistic complexity
measures are rarely used in the context of FRQ. Results using operating complexity measures are mixed, with significance in
69.9 percent of internal controls and audit fee models, but are rarely included and mostly insignificant (87.3 percent) when
included in restatement, accrual, and audit delay studies (see Table 1 in the Online Appendix 1). For example, segments and
foreign operations are often not associated with restatements (e.g., Cao et al. 2012; Garrett, Hoitash, and Prawitt 2014). These
variables also exhibit a mixed association with MW disclosure, with evidence of significant associations (Ashbaugh-Skaife,
Collins, and Kinney 2007; Doyle, Ge, and McVay 2007b; Hoitash et al. 2009) and insignificant associations (Ogneva et al.
2007). These proxies are also not consistently associated with measures of accruals, showing mixed results (Doyle et al. 2007a)
or no association (Chan, Farrell, and Lee 2008). Overall, despite strong priors that complexity would reduce FRQ, the link
between operating complexity measures and FRQ is not always consistent. Because prior research finds that linguistic
complexity increases the difficulty in consuming the financial reports, linguistic complexity measures may partially reflect
report preparation complexity and may also be associated with lower FRQ. However, to the best of our knowledge, research on
the association between linguistic complexity and FRQ is limited.
Large values of ARC imply that greater requisite knowledge of accounting standards and regulations is needed to prepare
the financial reports, and this is likely to increase the likelihood of mistakes and incorrect application of GAAP. Another
possibility is that managers are more likely to intentionally manipulate the financial reports of complex firms if they perceive
that accounting complexity will shield them from detection (Bergstresser, Desai, and Rauh 2006; Picconi 2006; Peterson 2012;
Guragai et al. 2017). Taking both arguments into account, we predict an inverse association between ARC and FRQ.
Furthermore, because ARC is more directly linked to accounting, is based on more detailed disclosures, and exhibits greater
variation than operating or linguistic complexity measures, we also predict a stronger and more consistent association between
ARC and FRQ in comparison to other complexity measures.13
H1a: ARC is inversely associated with financial reporting quality.
13
Here and in the subsequent hypothesis, stronger suggests greater explanatory power and larger economic significance. Consistent suggests that ARC
will be significant in the expected direction across more models as compared to other complexity variables.

H1b: The inverse association between ARC and financial reporting quality is stronger and more consistent relative to
measures of operating and linguistic complexity.
Greater accounting complexity can also increase audit risk. To mitigate this risk, auditors are expected to increase their
effort and/or charge a fee premium to compensate for the additional risk, both of which lead to higher audit fees (Bedard and
Johnstone 2004). Increased accounting complexity and regulations can also lead to audit delay (e.g. Ettredge, Li, and Sun 2006;
Bronson, Hogan, Johnson, and Ramesh 2011). Prior studies show inconsistent associations between operating complexity and
audit delay, finding no association (e.g., E. Bamber, L. Bamber, and Schoderbek 1993; Pizzini, Lin, and Ziegenfuss 2015) or a
mixed association (e.g., Ettredge et al. 2006; Knechel and Sharma 2012). To the best of our knowledge, studies have not
examined audit delay and linguistic complexity. In contrast to audit delay studies, past research consistently finds that operating
complexity is associated with higher audit fees (e.g., Hay, Knechel, and Wong 2006; R. Hoitash, U. Hoitash, and Bedard
2008). There is also limited evidence of a positive association between the length of the 10-K and audit fees (Badertscher,
Jorgensen, Katz, and Kinney 2014), yet similar evidence with respect to the Fog Index does not exist. As suggested, ARC is a
more complete measure of overall firm-specific accounting complexity. Therefore, we predict that ARC will be associated with
increased audit delay and audit fees and expect this association to be stronger and more consistent compared to other measures
of complexity.
H2a: ARC is positively associated with audit delay and audit fees.
H2b: The positive association between audit delay, audit fees, and ARC is stronger and more consistent relative to
measures of operating and linguistic complexity.
While we predict that ARC leads to poor FRQ, we acknowledge that a complex accounting system as a whole may provide
the flexibility for companies to better map their underlying economics into accounting disclosures. This may improve FRQ and
their usability (SEC 2006; Dechow, Ge, and Schrand 2010). While in this paper we do not examine this important aspect of
ARC, R. Hoitash, U. Hoitash, and Yezegel (2017) find that ARC is associated with poor analyst performance, suggesting that
greater ARC diminishes the usability of the financial reports.
III. DATA AND METHODOLOGY

Our data construction begins with detailed XBRL tag-level data from Calcbench, an XBRL data provider.14 Because
Calcbench extracts XBRL tags directly from SEC filings, the proposed measure is objective and easily replicable. The data
cover all information reported and tagged in Item 8 of the 10-K, which includes the financial statements and notes to the
financial statements. Our sample begins with 20,437 XBRL filings of 10-K reports for fiscal years 2011–2014 that are filed
within 150 days of the fiscal year-end. After restricting the data to Compustat firms, we are left with 13,674 observations. We
then restrict our sample to firms with positive sales that have non-missing common shares outstanding and assets greater than
$10 million, yielding a sample of 12,926 observations. We also remove firms that are missing data on material weaknesses,
audit fees, and restatements from Audit Analytics, firms with less than ten tags in each financial statement, and first-time XBRL
filers.15 The final sample includes 11,972 firm-year observations.
Variable Definitions
Main Test Variable
In the XBRL U.S. GAAP Taxonomy, each accounting concept is depicted by a tag. Each tag in the taxonomy is assigned a
name and a label and includes other attributes, such as data type (monetary or string) and balance type (credit/debit), among
others. The objective of the taxonomy is to define tags that enable companies to report all of their accounting reporting concepts
in XBRL. Although the taxonomy includes over 16,000 tags, companies may have disclosure needs that are not covered.
XBRL was designed to enable companies to extend the taxonomy and create unique tags (extended tags) that meet their needs.
More details on XBRL tags and extensions appear in Online Appendix 2.
The primary test variable we construct is an intuitive, objective, and easily replicable measure of accounting reporting
complexity (ARC). The measure is calculated as the natural log of the total number of distinct monetary annual tags reported in
Item 8 of the 10-K filings, which includes the financial statements and notes. ARC captures the amount of distinct accounting
information that companies report in their financial statements and notes. This proposed variable proxies for accounting
14
A similar version of ARC, based on company XBL filings that were downloaded directly from the SEC, is available at http://www.xbrlresearch.com
15
Since firms must tag the financial statement notes only in the second XBRL filing, removing first-time filers assures that all observations in our sample
tagged their notes. Our sample starts in 2011 because most companies were not required to tag their notes in 2010.

complexity because each XBRL tag refers to accounting standards and regulations. A greater volume and diversity of
accounting information complicates the preparation of the financial reports because preparers not only need detailed knowledge
of more accounting standards, but also must collect, categorize, store, and analyze this information.
Online Appendix 3 (see Appendix B for the link) depicts an example that illustrates the mapping between the financial
reports and the underlying XBRL tags used to create ARC. Online Appendix 3 presents descriptive data for two firms,
XenoPort, Inc. and Optimar Pharmaceuticals Inc. Although these firms are similarly sized and are in the same four-digit SIC
industry, Optimar reported 243 distinct tags, in comparison to 147 used by XenoPort. Optimar also reported a material
weakness in its internal controls. Online Appendix 3 further explains how ARC is constructed and illustrates how repeating tags
are removed from the count of tags.16
Other Complexity Test Variables

Throughout our analyses, we compare ARC to commonly used measures of complexity. We measure operating complexity
using the number of business and geographic segments (Bus-Segment, Geo-Segment) and an indicator variable for the presence
of foreign operations (Foreign). We measure linguistic complexity with two variables, Fog and 10-K-Length. The first, and
more common, is the Fog Index, developed in the linguistics literature and used by prior accounting studies (Li 2008; Lehavy et
al. 2011; Hsieh, Hui, and Zhang 2015). To calculate the Fog Index, we rely on the method of Gunning (1952), wherein Fog ¼
(average words per sentence þ percent of complex words) 3 0.4. Complex words are defined as words with three syllables or
more (Li 2008). The second measure captures the length of the 10-K filings by taking the log of the number of words (10-K-
Length).
Dependent Variables
We examine several financial reporting quality proxies as dependent variables. The first is an indicator variable that
captures whether the financial reports contained a significant misstatement that subsequently led to a restatement
(Misstatement). The second is an indicator variable that represents the quality of the internal controls over financial reporting
and indicates whether a material weakness under Section 302 or 404 is disclosed (MW). The third captures accruals quality
(AQ) using the standard deviation of the residuals from Dechow and Dichev (2002), as modified by McNichols (2002) and
Francis, LaFond, Olsson, and Schipper (2005).17 The fourth captures Audit-Delay, measured as the number of days between the
fiscal year-end date and the audit report date minus the SEC’s filing deadline requirement (60, 75, and 90 days for large
accelerated, accelerated, and non-accelerated, respectively). The last dependent variable is the natural log of audit fees (Audit-
Fees), which we use as a proxy for auditor effort and/or auditor assessment of financial reporting risk.
Control Variables
All models include a comprehensive list of control variables that were identified in prior research and are described in
Appendix A (e.g., Roy 1952; Simunic 1980; Dechow and Dichev 2002; Palmrose and Scholz 2004; Hay et al. 2006;
Ashbaugh-Skaife et al. 2007; Doyle et al. 2007b; Hribar and Nichols 2007; Hoitash et al. 2009).
IV. RESULTS
Descriptive Statistics
Table 1, Panel A presents descriptive statistics. On average, companies report 346 distinct tags in their financial statements
and notes. We observe misstatements and material weaknesses in 11.6 percent and 8.0 percent of the sample, respectively.
These statistics are similar to Cannon, Christensen, Omer, and Wood (2014), who report 11.7 percent misstatements and 7.9
percent material weaknesses in Sections 404 and 302. The mean level of accruals quality is 0.027, which is comparable to the
0.028 reported by Dechow and Dichev (2002). On average, firms issue their financial reports 6.9 days before the deadline, and
16
The measure is constructed based on the count of distinct tags within a specific section of the financial reports. We use distinct tags because firms
typically repeat certain items in the financial reports several times. For example, firms typically disclose revenues for the current and previous two
years. Therefore, if a tag repeats within a specific statement (e.g., three times in the income statement), then we retain only one tag. While duplications
of tags increase the volume of information, repeating tags across periods is less cumbersome for preparers and does not necessarily complicate the
preparation of the financial reports. Online Appendix 3 illustrates this process with an example. As we report later in the text, results are not sensitive to
alternative construction choices of ARC, including the retention of duplicate tags.
17
We also investigate Discretionary-Accruals, calculated as a variant of the modified-Jones model as introduced by Kothari, Leone, and Wasley (2005).
These results are tabulated in the Online Appendix 1.

TABLE 1
Descriptive Statistics and Correlations
Panel A: Descriptive Statistics

Number of Observations Mean Median STD
ARC (actual) 11,972 345.957 326.000 136.650
ARC^ 11,972 5.772 5.790 0.397
Bus-Segment 11,972 1.946 1.000 1.540
Geo-Segment 11,972 2.000 1.000 2.140
Foreign 11,972 0.285 0.000 0.452
Fog 11,972 19.330 19.309 1.031
10-K-Length 11,972 11.005 10.986 0.469
Misstatement 11,972 0.116 0.000 0.321
MW 11,972 0.080 0.000 0.271
AQ 7,138 0.027 0.021 0.022
Audit-Delay 11,972 6.941 4.000 9.067
Audit-Fees^ 11,972 13.892 13.921 1.299
Audit-Fees (thousands) 11,972 2,456.31 1,111.36 4,024.59
Size 11,972 7.095 7.193 2.098
New-Acquisition 11,972 0.079 0.000 0.270
New-Restructure 11,972 0.053 0.000 0.223
New-Discontinued-Operations 11,972 0.095 0.000 0.293
New-Capital-Lease 11,972 0.104 0.000 0.305
Physical Assets Upgrade 11,261 0.128 0.036 0.432
New-Write-Down 11,972 0.107 0.000 0.309
New-Dividend-Issuance 11,972 0.181 0.000 0.385
New-Share-Issuance 11,972 0.317 0.000 0.465
New-Debt 11,972 0.291 0.000 0.454
Loss 11,972 0.319 0.000 0.466
Going-Concern 11,972 0.023 0.000 0.149
Distress 11,972 4.529 4.000 2.363
Ext-Growth 11,972 0.146 0.000 0.353
Std-CFO 11,972 0.052 0.031 0.064
Std-Sales 11,972 0.124 0.078 0.146
Loss-Prop 7,138 0.116 0.000 0.269
Std-ROA 7,138 0.046 0.029 0.057
Op-Cycle 7,138 4.561 4.166 0.746
Leverage 11,972 0.237 0.185 0.226
Inv-Rec 11,972 0.273 0.213 0.228
Restructure 11,972 0.288 0.000 0.453
Acquisitions 11,972 0.194 0.000 0.395
Special-Items 11,972 0.011 0.001 0.035
Firm-Age 11,972 24.072 19.000 15.894
Lit-Ind 11,972 0.208 0.000 0.406
Big4 11,972 0.714 1.000 0.452
DQ 3,395 0.781 0.782 0.065
^ Indicates variables that are log-transformed. These log-transformed variables are used in subsequent models without the ‘‘^’’ symbol.
(continued on next page)
audit fees are $2.47 million, on average. Other descriptive data are presented in the table and are comparable to previous
research (Lobo and Zhao 2013; Kim, Park, and Wier 2012; Cohen, Hoitash, Krishnamoorthy, and Wright 2014). The
correlation matrix in Panel B shows a positive correlation between most of the complexity measures. As expected, larger firms
with greater operational complexity and greater 10-K-Length are positively correlated with ARC. However, the correlation with
Fog is negative, suggesting that the two capture different aspects of complexity.

TABLE 1 (continued)
Panel B: Pearson Correlation Coefficients
Bus- Geo- 10-K- Mis- Audit- Audit-
ARC Segment Segment Foreign Fog Length statement MW AQ Delay Fees Size
ARC 1
Bus-Segment 0.22*** 1
Geo-Segment 0.03** 0.27*** 1
Foreign 0.06*** 0.18*** 0.43*** 1
Fog 0.02* 0.05*** 0.14*** 0.11*** 1
10-K-Length 0.58*** 0.20*** 0.02* 0.07*** 0.23*** 1
Misstatement 0.09*** 0.10*** 0.04*** 0.03** 0.02* 0.08*** 1
MW 0.05*** 0.03** 0.01 0.02** 0.03** 0.01 0.22*** 1
AQ 0.34*** 0.19*** 0.03*** 0.01 0.06*** 0.15*** 0.03** 0.13*** 1
Audit-Delay 0.07*** 0.01 0.04*** 0.01 0.02* 0.09*** 0.11*** 0.20*** 0.05*** 1
Audit-Fees 0.54*** 0.50*** 0.35*** 0.27*** 0.05*** 0.50*** 0.11*** 0.07*** 0.28*** 0.01 1
Size 0.72*** 0.31*** 0.08*** 0.05*** 0.03** 0.53*** 0.053*** 0.16*** 0.34*** 0.03** 0.79*** 1
***, **, * Indicate two-tailed statistical significance at 1 percent, 5 percent, and 10 percent, respectively.
The Association between Significant Economic Events and Accounting Complexity

A major role of accounting is to faithfully translate a firm’s underlying economic activities into the financial reports
(DeFond and Zhang 2014). Therefore, a good measure of accounting complexity should fluctuate with significant economic
events. As a baseline test, we examine whether ARC and other complexity measures vary in response to significant economic
events. We examine the following observable economic events that should give rise to accounting complexity: New-
Acquisition, New-Restructure, New-Discontinued-Operations, New-Capital-Lease, Physical-Assets-Upgrade, New-Write-
Down, New-Dividend-Issuance, New-Share-Issuance, and New-Debt.18,19 We argue that ARC experiences greater within-
firm variation compared to other complexity measures and, therefore, predict that it will more completely capture changes in
accounting complexity emanating from these economic events.
Columns (1)–(6) of Table 2 present regression results of changes in ARC, Bus-Segment, Geo-Segment, Foreign, Fog, and
10-K-Length, respectively, on the above events, controlling for year and industry fixed effects. With the exception of New-
Dividend-Issuance, we observe that all of the events are positively associated with changes in ARC (p , 0.01, in all but one
case).20 In contrast, the associations with other complexity measures are weaker and more sporadic, and in certain cases, even
load with an unexpected negative sign. When examining the explanatory power of the models, we observe that the identified
events explain 10.6 percent of changes in ARC, but less than 3 percent of the change in Bus-Segment and close to 0 percent of
the variation in the other complexity measures.21 These results present compelling evidence that because ARC exhibits greater
variation and because it is derived directly from a comprehensive set of accounting disclosures, it more faithfully reflects
accounting and economic changes.
18
All variables are defined in Appendix A. Past research indicates that these economic events can give rise to accounting complexity for several reasons.
For example, Doyle, Ge, and McVay (2007a) suggest that restructuring is complicated because it is an indication of downsizing business units or
reengineering the firm and often results in difficult accrual estimations and adjustments. Acquisition accounting is complex because it involves
revaluing the target’s assets and liabilities to fair value, as well as recording the goodwill amount (ASC 805). In comparison to restructuring and
mergers and acquisitions (M&A) accounting, other events, like debt and new stock issuance, may be less significant, but can also contribute to
complexity. For example, debt disclosures can be complicated because companies often disclose the long-term debt balance, current and long-term debt
portion, date issued, face value, and several interest rates. In addition, many companies estimate the fair value of their long-term debt and compare it to
the carrying value. Stock issuance can also be complicated to disclose not only because of the issuance itself, but also because of its impact on
disclosures that relate to shareholders’ equity and to all disclosures on a per-share basis, such as the earnings per common share and related footnotes.
19
We acknowledge that we do not, and cannot, capture the full set of possible economic events. Rather, our objective in this analysis is to illustrate how
ARC, compared to other proxies, changes around these significant economic events.
20
We note that not all economic activities are created equally, and some have a more significant impact on accounting complexity than others. For
example, New-Acquisition and New-Restructure contribute to accounting complexity to a greater extent than New-Debt or New-Share-Issuance. When
we remove New-Acquisition and New-Restructure, the explanatory power of the model (Table 2, Column (1)) falls from 10.6 percent to 8.9 percent. In
contrast, when we remove New-Debt or New-Share-Issuance, it declines to 9.7 percent. Further, the economic impact of acquisitions and restructurings
is also significantly greater relative to that of New-Debt or New-Share-Issuance.
21
The Vuong (1989) Z-statistic confirms that the explanatory power in Column (1) is statistically larger relative to all other columns. The negative
Adjusted R2 values in Columns (4) and (5) suggest that the explanatory variables do not explain the variation in dependent variables. We also
conducted a similar analysis using the levels of complexity measures rather than the changes. The ARC model has the greatest number of significant
variables, as well as the greatest explanatory power.

TABLE 2
Associating Changes in Complexity with Economic Events
(1) (2) (3) (4) (5) (6)
DARC DBus-Segment DGeo-Segment DForeign DFog D10-K-Length
New-Acquisition 0.033*** 0.028 0.027 0.004 0.000 0.060***
(10.30) (1.63) (1.35) (0.66) (0.01) (5.33)
New-Restructure 0.021*** 0.013 0.005 0.014* 0.008 0.003
(5.61) (0.63) (0.23) (1.86) (0.26) (0.20)
New-Discontinued-Operations 0.058*** 0.280*** 0.097*** 0.003 0.013 0.013
(11.94) (10.75) (3.30) (0.31) (0.36) (0.80)
New-Capital-Lease 0.047*** 0.040 0.006 0.001 0.093* 0.020
(6.97) (1.10) (0.15) (0.09) (1.79) (0.83)
Physical Assets Upgrade 0.039*** 0.095*** 0.017 0.005 0.013 0.042***
(14.53) (6.66) (1.06) (0.82) (0.65) (4.58)
New-Write-Down 0.015*** 0.020 0.078*** 0.004 0.018 0.017
(4.15) (1.06) (3.64) (0.60) (0.65) (1.40)
New-Dividend-Issuance 0.009 0.028 0.056 0.020* 0.016 0.031
(1.55) (0.91) (1.58) (1.69) (0.35) (1.55)
New-Share-Issuance 0.008* 0.003 0.034 0.000 0.033 0.005
(1.95) (0.12) (1.37) (0.00) (1.06) (0.39)
New-Debt 0.026*** 0.001 0.015 0.006 0.044* 0.021*
(8.54) (0.03) (0.81) (0.95) (1.88) (1.95)
Constant 0.014** 0.026 0.018 0.019 0.006 0.011
(2.40) (0.82) (0.52) (1.57) (0.13) (0.56)
Industry and Year FE Yes Yes Yes Yes Yes Yes
Observations 7,201 7,201 7,201 7,201 7,201 7,201
Adjusted R2 0.106 0.028 0.001 0.000 0.004 0.005
This table reports results from regressions of changes in complexity variables. The negative Adjusted R2 values in Columns (4) and (5) suggest that the
explanatory variables do not explain the variation in dependent variables. We also conducted a similar analysis using the levels rather than the changes.
Results of H1: Accounting Complexity and Financial Reporting Quality

To test H1, we examine the association between several complexity measures and FRQ. Table 3 presents results testing the
association between accounting complexity and the likelihood of misstatement. Column (1) presents results of the complete
model with all control and test variables. Results support H1a, showing a strong and positive association between ARC and the
likelihood of a misstatement (p , 0.01). We also observe that Bus-Segment is positively associated with the likelihood of
misstatement (p , 0.01), while other complexity measures are not.22 To assess the explanatory power of ARC in comparison to
the other categories of complexity, in Columns (2)–(5), we drop ARC, operating complexity, linguistic complexity, and Size,
respectively. Dropping ARC led to a 3.8 percent reduction in the explanatory power of the model. In comparison, dropping the
three operating complexity measures leads to a reduction of only 1.5 percent in the explanatory power. Dropping both linguistic
complexity measures (Column (4)) and dropping Size (Column (5)) results in only a 0.00 percent and 0.76 percent reduction in
explanatory power, respectively. While the reduction in explanatory power when ARC is removed is not large in absolute terms,
it is significantly larger than when other complexity measures are removed, supporting H1b.23 We also note that other than
MW, which potentially has a mechanical association with the likelihood of misstatement, none of the other significant control
variables contribute more to the explanatory power than ARC.
22
Detecting misstatements in the presence of accounting complexity should take longer. We test this within a sample of restating firms where the
dependent variable is the length of the misstatement period in months. We find that ARC is associated with longer misstatement periods (p , 0.01). 10-
K-Length is inversely associated with the length of misstatements, and other complexity variables are insignificant.
23
The Vuong (1989) Z-statistic confirms that the difference in explanatory power between Columns (1) and (2) is statistically significant (p , 0.01).
Further, it also indicates that the explanatory power is significantly lower in Column (2) when ARC is excluded, as compared to Columns (3) and (4),
supporting H1b. We also observe that the sign on Big4 and Std-CFO is inconsistent with our prediction in Table 3, but is consistent in other tables,
possibly because the nature of restatements has changed over time. The negative sign on Special-Items suggests that negative one-time items are
associated with greater misstatement likelihood.

TABLE 3
Accounting Complexity and Misstatements
(1) (2) (3) (4) (5)
Misstatement Misstatement Misstatement Misstatement Misstatement
Complexity Measures
ARC 1.011*** 1.061*** 1.082*** 0.850***
(6.82) (7.28) (7.79) (6.15)
Bus-Segment 0.089*** 0.114*** 0.090*** 0.080***
(3.66) (4.73) (3.70) (3.30)
Geo-Segment 0.010 0.002 0.010 0.013
(0.58) (0.12) (0.56) (0.72)
Foreign 0.122 0.084 0.117 0.122
(1.61) (1.11) (1.55) (1.62)
Fog 0.019 0.053 0.013 0.021
(0.58) (1.63) (0.41) (0.64)
10-K-Length 0.129 0.361*** 0.132 0.066
(1.33) (4.04) (1.37) (0.69)
Controls
Size 0.091*** 0.018 0.079*** 0.083***
(3.05) (0.65) (2.67) (2.86)
Loss 0.034 0.047 0.032 0.043 0.083
(0.42) (0.57) (0.39) (0.53) (1.03)
Going-Concern 0.352 0.354 0.376* 0.349 0.316
(1.61) (1.63) (1.72) (1.60) (1.44)
Distress 0.007 0.006 0.008 0.005 0.000
(0.38) (0.30) (0.42) (0.27) (0.02)
Ext-growth 0.214** 0.202** 0.215** 0.220** 0.211**
(2.43) (2.29) (2.44) (2.50) (2.40)
Std-CFO 2.330*** 2.754*** 2.378*** 2.256*** 1.910**
(3.06) (3.64) (3.12) (2.97) (2.57)
Std-Sales 0.070 0.042 0.152 0.079 0.134
(0.26) (0.16) (0.57) (0.30) (0.50)
Leverage 0.283 0.391** 0.285 0.294 0.209
(1.57) (2.21) (1.60) (1.64) (1.17)
Inv-Rec 0.554** 0.432* 0.561** 0.574** 0.481**
(2.41) (1.91) (2.44) (2.50) (2.10)
Restructure 0.026 0.081 0.017 0.023 0.010
(0.34) (1.08) (0.23) (0.31) (0.13)
Acquisitions 0.049 0.025 0.044 0.045 0.057
(0.62) (0.31) (0.55) (0.57) (0.72)
Special-Items 2.368*** 2.527*** 2.428*** 2.405*** 2.473***
(2.88) (3.09) (2.95) (2.93) (3.01)
Firm-Age 0.005** 0.003 0.004* 0.006** 0.006***
(2.25) (1.47) (1.67) (2.49) (2.87)
Lit-Ind 0.087 0.017 0.064 0.103 0.077
(0.65) (0.13) (0.48) (0.77) (0.58)
Big4 0.630*** 0.626*** 0.599*** 0.642*** 0.536***
(6.35) (6.35) (6.07) (6.49) (5.68)
MW 1.928*** 1.969*** 1.921*** 1.930*** 1.956***
(21.75) (22.43) (21.70) (21.78) (22.20)
Constant 8.584*** 5.543*** 8.983*** 8.006*** 7.612***
(7.97) (5.74) (8.43) (11.36) (7.40)
Industry and Year FE Yes Yes Yes Yes Yes
Observations 11,915 11,915 11,915 11,915 11,915
Pseudo R2 0.132 0.127 0.130 0.132 0.131
% Change in R2 3.79% 1.52% 0.00% 0.76%
Variables are defined in Appendix A.

Another indication for the importance of variables is their economic significance. We calculate economic significance as
the change in likelihood of misstatement when each complexity measure moves from the 25th percentile to the 75th percentile,
or from 0 to 1 for Foreign. All other variables are measured at their sample means. We observe a 39.7 percent increase in
misstatement likelihood when ARC moves from the 25th percentile to the 75th percentile.24 In comparison, Bus-Segment is
associated with a 12.1 percent increase and Size is associated with a 16.5 percent decrease. This suggests that firm size is
associated with better FRQ and, thus, may not be a good proxy for complexity in this context. Overall, ARC has greater
economic significance than all other complexity variables, providing further support for H1b.
Column (1) in Table 4 shows a positive association between ARC and the likelihood of MW disclosure (p , 0.01),
supporting H1a.25 Foreign and 10-K-Length are also positive and significant (p , 0.01, p , 0.01). ARC is responsible for 2.6
percent of the explanatory power of the model (Column (2)). In comparison, operating complexity (Column (3)) and linguistic
complexity (Column (4)) explain only 0.5 percent. Thus, ARC’s explanatory power is five times greater than the other
complexity categories, supporting H1b.26 Size is responsible for 5.1 percent of the explanatory power of the model (Column
(6)). Its negative sign suggests that Size likely captures firm resources rather than complexity. We also note that other than
misstatement, which is only known in hindsight, none of the other significant control variables have an explanatory power that
is greater than ARC. With respect to economic significance, we observe a 34.1 percent increase in MW disclosure likelihood
when ARC moves from the 25th percentile to the 75th percentile. In comparison, Foreign is associated with 13.89 percent
increase, 10-K-Length is associated with 10.69 percent increase, and Size is associated with a decrease of 53.2 percent. Overall,
these results support H1b.
Results in Table 5 reveal that ARC is not significantly associated with AQ.27,28 However, 10-K-Length is associated with
higher AQ, which is consistent with lower FRQ. Although ARC and measures of operating complexity do not contribute to the
explanatory power of the model, readability is associated with a slight increase of 0.21 percent (p , 0.06). These results
suggest that ARC, as well as other complexity measures, may not be suitable for capturing the discretionary nature or estimation
error in company accruals. This is consistent with DeFond and Zhang (2014), who highlight that not all financial reporting
quality measures are created equally. Taken together, H1a and H1b are supported with respect to misstatement and MW, but
not with respect to accruals quality.
Results of H2: Accounting Complexity, Audit Delay, and Audit Fees

To test H2, we examine the association between several complexity measures and audit delay and audit fees. Table 6,
Column (1) shows a positive and strong association between ARC and Audit-Delay (p , 0.01), supporting H2a. Bus-Segment is
also positive and significant, but Geo-Segment is negative and significant (p , 0.05, p , 0.01). 10-K-Length is positive and
significant, but Fog is negative and significant (p , 0.01, p , 0.01). Thus, the operating and linguistic complexity measures
experience inconsistent associations with audit delay, providing support for H2b. ARC is responsible for 10.3 percent of the
explanatory power of the model. In comparison, operating complexity measures explain only 1.5 percent and linguistic
complexity measures explain 10.3 percent, which is similar to ARC. We also note that other than Going-Concern, none of the
significant control variables have a greater explanatory power than ARC. Size explains 13.2 percent of the model, but, again,
does not seem to capture complexity as it loads with a negative sign. When ARC moves from the 25th percentile to the 75th
percentile, there is a 30.2 percent increase in Audit-Delay. In comparison, Bus-Segment is associated with a 4.9 percent
24
Here and in subsequent models, economic significance is calculated as follows: When ARC is at its 25th percentile, the misstatement likelihood
calculated by the model is 0.066. When ARC is at its 75th percentile, the misstatement likelihood calculated by the model is 0.112. Overall, the
difference is 0.046. The unconditional misstatement likelihood in our sample is 0.116 and, therefore, 0.046/0.116 ¼ 0.40 (rounded). The economic
significance may appear large for two reasons: (1) our calculation holds all variables at their sample mean, while, in reality, variables change at the same
time, and (2) the percent change calculation takes into account the unconditional likelihood of an event.
25
The number of observations is different across logit models because when any independent variable perfectly predicts (success or failure) the dependent
variable, STATA automatically drops perfect collinear observations. For example, in the misstatement model, observations in SIC 41 (three in total) are
dropped because STATA notes that this indicator variable ‘‘predicts failure perfectly.’’
26
The Vuong (1989) Z-statistic confirms that the difference in explanatory power between Columns (1) and (2) is statistically significant (p , 0.05).
Further, it indicates that the explanatory power is significantly lower in Column (2) when ARC is excluded, as compared to Columns (3) and (4), thus
supporting H1b.
27
The sample size in the accrual models is lower because financial firms are excluded and the model requires variables calculated over multiple years. The
model includes Fama and French’s (1997) 48 industry controls because AQ is generated using this industry classification (Francis et al. 2005). To
examine whether results using other dependent variables are driven by financial firms, we excluded financial firms from Tables 3–7 and obtain similar
results.
28
We observe similar results when we use discretionary accruals instead of AQ. These results appear in Table 1 of the Online Appendix 4 (see Appendix
B for the link).

TABLE 4
Accounting Complexity and MW
(1) (2) (3) (4) (5)
MW MW MW MW MW
Complexity Measures
ARC 1.022*** 1.017*** 1.160*** 0.449***
(5.82) (5.92) (6.95) (2.80)
Bus-Segment 0.025 0.006 0.022 0.052
(0.72) (0.18) (0.62) (1.52)
Geo-Segment 0.031 0.019 0.032 0.037*
(1.39) (0.85) (1.44) (1.66)
Foreign 0.247*** 0.283*** 0.259*** 0.251***
(2.68) (3.08) (2.82) (2.73)
Fog 0.008 0.025 0.001 0.028
(0.20) (0.60) (0.02) (0.67)
10-K-Length 0.318*** 0.531*** 0.337*** 0.064
(2.68) (4.77) (2.85) (0.56)
Controls
Size 0.321*** 0.231*** 0.325*** 0.294***
(8.25) (6.60) (8.40) (7.84)
Loss 0.406*** 0.425*** 0.405*** 0.439*** 0.568***
(4.31) (4.52) (4.30) (4.69) (6.20)
Going-Concern 0.684*** 0.708*** 0.704*** 0.698*** 0.838***
(4.18) (4.35) (4.31) (4.26) (5.15)
Distress 0.073*** 0.086*** 0.074*** 0.080*** 0.106***
(3.64) (4.30) (3.66) (3.97) (5.35)
Ext-Growth 0.250** 0.234** 0.256** 0.264*** 0.224**
(2.50) (2.35) (2.56) (2.64) (2.25)
Std-CFO 0.590 0.217 0.576 0.746 1.474**
(0.92) (0.34) (0.90) (1.17) (2.36)
Std-Sales 0.921*** 0.931*** 0.912*** 0.931*** 1.049***
(3.58) (3.63) (3.55) (3.62) (4.13)
Leverage 0.204 0.113 0.221 0.191 0.470**
(1.03) (0.58) (1.13) (0.97) (2.40)
Inv-Rec 0.675*** 0.726*** 0.687*** 0.618** 0.865***
(2.71) (2.95) (2.77) (2.48) (3.50)
Restructure 0.200** 0.152 0.191** 0.209** 0.266***
(2.11) (1.61) (2.02) (2.20) (2.83)
Acquisitions 0.156 0.117 0.166 0.143 0.181*
(1.47) (1.11) (1.57) (1.35) (1.72)
Special-Items 1.994** 2.176*** 1.941** 2.065** 2.399***
(2.46) (2.72) (2.40) (2.55) (2.98)
Firm-Age 0.013*** 0.012*** 0.014*** 0.015*** 0.017***
(4.22) (3.74) (4.45) (4.74) (5.46)
Lit-Ind 0.137 0.205 0.133 0.095 0.144
(0.91) (1.38) (0.89) (0.64) (0.97)
Big4 0.110 0.140 0.108 0.089 0.431***
(1.09) (1.40) (1.07) (0.88) (4.61)
Misstatement 1.948*** 1.994*** 1.940*** 1.950*** 1.957***
(22.03) (22.67) (21.99) (22.07) (22.32)
Constant 11.264*** 8.077*** 11.276*** 8.599*** 7.948***
(8.34) (6.64) (8.44) (10.15) (6.19)
Observations 11,818 11,818 11,818 11,818 11,818
Pseudo R2 0.194 0.189 0.193 0.193 0.184
% Change in R2 2.58% 0.52% 0.52% 5.15%

TABLE 5
Accounting Complexity and Accruals Quality
(1) (2) (3) (4) (5)
AQ AQ AQ AQ AQ
Complexity Measures
ARC 0.001 0.002 0.000 0.003***
(1.33) (1.63) (0.08) (3.81)
Bus-Segment 0.000 0.000 0.000 0.000**
(1.15) (1.35) (0.97) (2.04)
Geo-Segment 0.000 0.000 0.000 0.000
(0.16) (0.29) (0.09) (0.48)
Foreign 0.000 0.000 0.000 0.000
(0.60) (0.73) (0.46) (0.55)
Fog 0.000 0.000 0.000 0.000
(1.06) (0.88) (1.00) (1.32)
10-K-Length 0.002*** 0.002*** 0.002*** 0.002***
(3.89) (3.66) (3.81) (2.67)
Controls
Size 0.001*** 0.001*** 0.001*** 0.001***
(6.64) (7.54) (6.87) (6.03)
Loss 0.000 0.000 0.000 0.000 0.001*
(0.59) (0.55) (0.61) (0.84) (1.65)
Going-Concern 0.003** 0.003** 0.003* 0.003** 0.003*
(1.96) (1.98) (1.95) (1.99) (1.79)
Distress 0.001*** 0.001*** 0.001*** 0.001*** 0.001***
(4.28) (4.14) (4.26) (4.65) (5.05)
Ext-Growth 0.001 0.001 0.001 0.001 0.001
(1.39) (1.40) (1.41) (1.54) (1.27)
Std-CFO 0.144*** 0.144*** 0.144*** 0.145*** 0.149***
(21.88) (21.94) (21.89) (22.05) (22.66)
Std-Sales 0.021*** 0.020*** 0.020*** 0.021*** 0.022***
(10.82) (10.76) (10.80) (10.84) (11.36)
Leverage 0.004*** 0.004*** 0.004*** 0.004*** 0.005***
(3.30) (3.45) (3.19) (3.20) (4.18)
Inv-Rec 0.017*** 0.017*** 0.017*** 0.017*** 0.019***
(10.41) (10.44) (10.34) (10.15) (11.44)
Restructure 0.001* 0.001* 0.001* 0.001* 0.001
(1.94) (1.79) (1.92) (1.91) (1.52)
Acquisitions 0.001 0.001* 0.001 0.001 0.001*
(1.64) (1.71) (1.62) (1.52) (1.92)
Special-Items 0.008 0.008 0.008 0.008 0.010
(1.32) (1.28) (1.29) (1.42) (1.62)
Firm-Age 0.000* 0.000** 0.000** 0.000*** 0.000***
(1.91) (2.09) (2.05) (2.66) (3.26)
Lit-Ind 0.001 0.001 0.001 0.001 0.001
(0.76) (0.76) (0.65) (0.73) (1.03)
Big4 0.002*** 0.002*** 0.002*** 0.002*** 0.003***
(3.61) (3.66) (3.59) (3.36) (6.38)
Loss-Prop 0.008*** 0.008*** 0.008*** 0.008*** 0.009***
(7.25) (7.36) (7.27) (7.49) (8.14)
Op-Cycle 0.000 0.000 0.000 0.000 0.000
(0.91) (1.01) (0.98) (1.07) (0.99)
Std-ROA 0.038*** 0.038*** 0.038*** 0.038*** 0.039***
(7.80) (7.81) (7.79) (7.84) (8.04)
Constant 0.006 0.002 0.007 0.019** 0.020**
(0.60) (0.25) (0.75) (2.28) (2.02)

TABLE 5 (continued)
(1) (2) (3) (4) (5)
AQ AQ AQ AQ AQ
Observations 7,138 7,138 7,138 7,138 7,138
Adjusted R2 0.468 0.468 0.468 0.467 0.465
% Change in R2 0.00% 0.00% 0.21% 0.65%
increase, 10-K-Length is associated with an 18.5 percent increase, and Size is associated with a 33.5 percent decrease. Overall,
these results provide support for H2b.29
Column (1) of Table 7 shows a strong and positive association between ARC and Audit-Fees (p , 0.01), supporting H2a.30
We also observe that aside from Fog, all other complexity measures are also positive and significant (all p , 0.01). The
additional explanatory power attributed to ARC is modest at 0.2 percent. Operating complexity contributes 0.8 percent,
linguistic complexity contributes 0.3 percent, and Size contributes 12.4 percent. The relative moderate contribution of the
different complexity measures to explanatory power is expected because the audit fee model has a very high explanatory power
to begin with.
With respect to economic significance, as ARC moves from the 25th percentile to the 75th percentile, audit fees increase by
16.5 percent. A similar change for Bus-Segment, Geo-Segment, Foreign, and 10-K-Length is associated with an audit fee
increase of 10, 10, 12, and 12 percent, respectively. Not surprisingly, a similar change in Size is associated with a 126 percent
increase in audit fees. Overall, while the additional explanatory power of ARC in the audit fee model is modest, the economic
significance seems substantial. Taken together, these results provide partial support for H2b.31
Additional Analyses and Validation Tests

Next, we perform additional tests to further validate ARC. The following models include all of the control variables
described above, but for the sake of brevity, we do not tabulate them.
Accounting Complexity Not Due to Operating or Linguistic Complexity

ARC may encompass complexity that is due to operating and linguistic complexity. If this proposition is true, then when
ARC is removed from the models, the coefficients on operating and linguistic complexity variables should increase. We test this
proposition by comparing coefficients across Columns (1) and (2) (when ARC is removed) in Tables 3–7. Untabulated
coefficient comparisons show that the magnitude of significant operating and linguistic complexity coefficients is significantly
greater when ARC is omitted.32 This suggests that ARC subsumes some, but not all, of operating and linguistic complexity.
Next, we decompose ARC into two measures of complexity: (1) complexity due to operating and linguistic complexity, and (2)
the unexplained portion of accounting complexity. We accomplish this by regressing ARC on Bus-Segment, Geo-Segment,
Foreign, Fog, and 10-K-Length. The model also includes industry and year fixed effects. We retain the predicted and residual
values of the model and substitute these values for ARC. Results in Table 2, Panel A of the Online Appendix 4 show that with
the exception of Discretionary-Accruals and AQ, both the predicted ARC and residual ARC are positive and significant
throughout. These results suggest that ARC captures accounting complexity that encompasses, but is also incremental to,
operating and linguistic complexity.
29
The Vuong (1989) Z-statistic confirms that the difference in explanatory power between Columns (1) and (2) is statistically significant (p , 0.01). The
Vuong (1989) Z-statistic also indicates that explanatory power is significantly lower in Column (2) when ARC is excluded, as compared to Column (3),
but is not statistically different from the explanatory power in Column (4), thus partially supporting H2b.
30
Auditors may be involved in XBRL reporting (R. Plumlee and M. Plumlee 2008), possibly explaining the higher fee results. We performed a look-back
analysis regressing audit fees during the years that preceded the XBRL reporting mandate in 2009 on the average value of ARC during our sample
period. In theory, auditors are unlikely to have been involved in XBRL prior to 2009. The audit fee results hold for our sample firms in 2007 and 2008,
alleviating the concern that our results are driven by additional XBRL-related work performed by the auditor.
31
Because firms may appear to have lower FRQ along some dimensions, but not others, we use factor analysis to combine four proxies of FRQ (MW,
Misstatements, AQ, and Audit-Delay). We find that all four proxies load positively and that ARC is inversely associated with this combined measure (p
, 0.01).
32
For example, in Table 3, the magnitude of Bus-Segment changes from 0.089 in Column (1) to 0.114 in Column (2) when we omit ARC. This difference
is statistically significant (p , 0.01).

TABLE 6
Accounting Complexity and Audit Delay
(1) (2) (3) (4) (5)
Audit-Delay Audit-Delay Audit-Delay Audit-Delay Audit-Delay
Complexity Measures
ARC 3.624*** 3.677*** 4.927*** 2.071***
(9.11) (9.43) (13.23) (5.58)
Bus-Segment 0.171** 0.265*** 0.180** 0.087
(2.43) (3.81) (2.55) (1.25)
Geo-Segment 0.152*** 0.123** 0.150*** 0.177***
(3.12) (2.52) (3.07) (3.61)
Foreign 0.121 0.283 0.226 0.126
(0.58) (1.36) (1.09) (0.60)
Fog 0.434*** 0.541*** 0.422*** 0.439***
(5.01) (6.28) (4.89) (5.04)
10-K-Length 2.278*** 3.115*** 2.295*** 1.678***
(8.86) (12.92) (8.93) (6.66)
Controls
Size 0.837*** 0.572*** 0.828*** 0.697***
(10.59) (7.75) (10.55) (9.03)
Loss 0.035 0.091 0.032 0.196 0.512**
(0.16) (0.41) (0.14) (0.89) (2.36)
Going-Concern 5.986*** 6.026*** 5.972*** 5.990*** 6.383***
(10.45) (10.49) (10.43) (10.43) (11.12)
Distress 0.085* 0.043 0.085* 0.047 0.009
(1.81) (0.92) (1.81) (1.01) (0.20)
Ext-Growth 0.760*** 0.726*** 0.768*** 0.839*** 0.702***
(3.17) (3.02) (3.20) (3.49) (2.92)
Std-CFO 4.168** 2.465 4.205** 5.546*** 7.080***
(2.36) (1.40) (2.38) (3.15) (4.04)
Std-Sales 1.736** 1.727** 1.597** 1.693** 1.128
(2.46) (2.44) (2.26) (2.39) (1.59)
Leverage 0.062 0.492 0.125 0.222 0.672
(0.13) (1.01) (0.26) (0.45) (1.39)
Inv-Rec 0.780 0.386 0.815 1.168** 0.097
(1.34) (0.66) (1.40) (2.01) (0.17)
Restructure 1.081*** 0.876*** 1.132*** 1.120*** 1.242***
(5.18) (4.21) (5.45) (5.35) (5.94)
Acquisitions 0.535** 0.640*** 0.527** 0.598*** 0.439**
(2.50) (2.98) (2.46) (2.78) (2.04)
Special-Items 10.103*** 10.830*** 10.229*** 10.713*** 11.262***
(4.05) (4.33) (4.10) (4.28) (4.49)
Firm-Age 0.001 0.005 0.000 0.011* 0.014**
(0.24) (0.80) (0.02) (1.81) (2.22)
Lit-Ind 0.654* 0.888** 0.682* 0.445 0.760**
(1.86) (2.52) (1.95) (1.27) (2.15)
Big4 0.172 0.163 0.121 0.384 0.726***
(0.73) (0.69) (0.51) (1.63) (3.28)
Constant 34.149*** 23.702*** 34.883*** 26.077*** 24.824***
(11.89) (8.97) (12.25) (14.04) (9.04)
Observations 11,972 11,972 11,972 11,972 11,972
Adjusted R2 0.068 0.061 0.067 0.061 0.059
% Change in R2 10.29% 1.47% 10.29% 13.24%

TABLE 7
Accounting Complexity and Audit Fees
(1) (2) (3) (4) (5)
Audit-Fees Audit-Fees Audit-Fees Audit-Fees Audit-Fees
Complexity Measures
ARC 0.280*** 0.380*** 0.387*** 1.061***
(13.75) (18.50) (20.16) (40.54)
Bus-Segment 0.051*** 0.058*** 0.052*** 0.093***
(14.18) (16.27) (14.36) (18.81)
Geo-Segment 0.035*** 0.037*** 0.034*** 0.047***
(14.08) (14.90) (13.66) (13.77)
Foreign 0.122*** 0.135*** 0.126*** 0.119***
(11.44) (12.56) (11.74) (8.08)
Fog 0.001 0.009** 0.008* 0.002
(0.23) (2.10) (1.85) (0.25)
10-K-Length 0.200*** 0.265*** 0.211*** 0.502***
(15.20) (21.36) (15.57) (28.29)
Controls
Size 0.421*** 0.441*** 0.431*** 0.435***
(103.89) (116.30) (104.42) (109.36)
Loss 0.098*** 0.102*** 0.088*** 0.118*** 0.142***
(8.69) (9.01) (7.63) (10.39) (9.30)
Going-Concern 0.040 0.043 0.040 0.048 0.160***
(1.35) (1.45) (1.33) (1.62) (3.96)
Distress 0.026*** 0.029*** 0.027*** 0.030*** 0.013***
(10.59) (11.89) (10.84) (12.30) (3.82)
Ext-Growth 0.013 0.010 0.007 0.022* 0.042**
(1.04) (0.81) (0.57) (1.76) (2.47)
Std-CFO 0.330*** 0.198** 0.256*** 0.460*** 1.134***
(3.65) (2.19) (2.75) (5.06) (9.20)
Std-Sales 0.303*** 0.303*** 0.293*** 0.317*** 0.003
(8.35) (8.31) (7.88) (8.67) (0.06)
Leverage 0.215*** 0.182*** 0.283*** 0.209*** 0.154***
(8.62) (7.27) (11.11) (8.30) (4.51)
Inv-Rec 0.129*** 0.159*** 0.171*** 0.093*** 0.214***
(4.32) (5.32) (5.58) (3.09) (5.24)
Restructure 0.122*** 0.137*** 0.145*** 0.118*** 0.203***
(11.37) (12.83) (13.30) (10.92) (13.75)
Acquisitions 0.031*** 0.039*** 0.033*** 0.038*** 0.079***
(2.84) (3.56) (2.89) (3.39) (5.23)
Special-Items 0.858*** 0.914*** 0.892*** 0.901*** 0.275
(6.71) (7.09) (6.79) (6.97) (1.56)
Firm-Age 0.004*** 0.004*** 0.004*** 0.003*** 0.010***
(11.29) (12.83) (12.42) (8.49) (22.43)
Lit-Ind 0.002 0.020 0.038** 0.025 0.051**
(0.12) (1.12) (2.08) (1.39) (2.04)
Big4 0.507*** 0.506*** 0.508*** 0.520*** 0.958***
(41.89) (41.51) (41.01) (42.77) (61.46)
Constant 6.041*** 6.849*** 5.628*** 7.492*** 1.354***
(41.06) (50.37) (37.57) (78.21) (7.00)
Observations 11,972 11,972 11,972 11,972 11,972
Adjusted R2 0.881 0.879 0.874 0.878 0.772
% Change in R2 0.23% 0.79% 0.34% 12.37%

Accounting Complexity and Disclosure Quality

Chen et al. (2015) propose and test a measure of disclosure quality (DQ) that is based on the level of disaggregation of
accounting disclosures. While they investigate the association of DQ with forecast accuracy and dispersion, they do not examine
the FRQ measures that are investigated in the current study. An important difference between ARC and DQ is that DQ is based on
around 145 Compustat variables, while ARC is based on all monetary items that companies disclose in their financial statements
and notes. Therefore, ARC relies on a broader set of disclosures. Nevertheless, it is interesting to consider DQ in our context. We
first examine the correlation between the two measures and find that they are inversely associated (p , 0.01, untabulated). Thus,
although both measures capture some aspect of disclosure detail, it appears that the two depict different constructs. We include
DQ in Table 8, which replicates our hypotheses tests, and observe similar results for ARC.33 We further find that DQ is associated
with lower MW disclosure likelihood and higher audit fees, but is not significantly associated with misstatements, audit delay, and
accruals quality. The inverse association detected with MW disclosure likelihood is new to the literature and suggests that
companies with higher DQ are able to maintain better controls. The latter result of a positive association with audit fees may
suggest that auditors need to perform more work when firms disclose more disaggregated information.
Change Analysis
We next examine whether changes in the different complexity measures are associated with changes in financial reporting
quality, audit delay, and audit fees. Prior literature often fails to find that changes in operating complexity are associated with
changes in FRQ (Ashbaugh-Skaife et al. 2007; Masli, Peters, Richardson, and Sanchez 2010; Dao, Raghunandan, and Rama
2012; Carcello and Li 2013; Beck and Mauldin 2014). This is inconsistent with expectations and may be attributed to the inability
of extant measures to adequately capture within-firm variation in complexity. In this analysis, we calculate the change of all
continuous variables (except firm age) and use the levels of indicator variables. Columns (1)–(4) of Table 9 present results
wherein the indicator dependent variables, misstatement and MW, take the value of 1 if a misstatement (MW) existed in year t,
but not in year t1, and 0 otherwise. The continuous dependent variables are measured as a change.34 Results show a positive
association between ARC and changes in all of the dependent variables (p , 0.01, in all cases but one). Notably, in most cases, we
do not observe that changes in any of the other complexity measures are associated with changes in the dependent variables. These
results suggest that, in contrast to other complexity measures, ARC can capture changes in accounting complexity over time.35
Account-Specific Complexity
One advantage of ARC over other measures of complexity is that it is based on accounting disclosures and, therefore, is not
a black box. That is, using XBRL tags, it is possible to disaggregate ARC into granular and more precise components and derive
a context-specific understanding of accounting complexity. To illustrate this, we identified XBRL tags in four accounts:
inventory, derivatives, lease, and tax. We count the number of inventory, derivatives, lease, and tax tags and propose that each
count can capture accounting complexity in the respective accounting area.36 If these measures capture greater account-specific
complexity, then we should observe greater misstatement and MW likelihood in these accounts. To test this prediction, we
associate the number of inventory, derivatives, lease, and tax tags (as well as the number of non-inventory, non-derivatives,
non-lease, and non-tax tags) with misstatements and MWs in these respective accounts as classified by Audit Analytics.37
33
We thank Chen et al. (2015) for graciously sharing with us their most recent data. These data have coverage until 2013. We do not use DQ in our main
analysis because of the significant sample attrition.
34
Since AQ is calculated over a window of five years, it is less meaningful to calculate the change because the components of AQ at time t have an overlap
of four years with AQ calculated at time t1. Therefore, we did not include AQ in the change analysis table. Nevertheless, while less appropriate, we
report that when we perform such analysis with AQ, ARC remains insignificant. In addition, we also report that changes in ARC are positively
associated with changes in Discretionary-Accruals.
35
Similar to the analyses in Tables 3–7, we also examine the incremental explanatory power of each complexity category in the change models. We find
that ARC has greater explanatory power than all other complexity categories in the models. Firm fixed effect regressions exhibit a similar pattern,
wherein ARC is significant and other complexity measures are mostly insignificant.
36
To identify such tags, we search for the words inventory, lease, tax (as well as variations in these words) in the name of the tags. To identify derivatives
tags, we search for the words derivative, hedging, and instruments, as well their stems, e.g., hedge in the name of the tags. We manually verified that
this procedure resulted in a correct classification.
37
We choose these four accounts because they are either part of the ongoing FASB simplification project or are part of revised proposed accounting
standards with a simplification objective (FASB 2013, 2015a, 2015b). For example, inventory issues can relate to inventory valuation, ownership, or in-
transit inventory, while lease issues can relate to depreciation expenses for lease assets, or incorrectly recording operating leases rather than capital
leases. In order for this analysis to be meaningful, we perform it within firms that have at least one inventory, derivatives, lease, or tax tag in the
respective analysis that relates to each account. Not imposing this restriction yields similar results. We also note that other accounts, such as pensions
and fair value, are probably more complex than inventory or lease. However, while we can identify pension and fair value using XBRL tags, Audit
Analytics does not classify fair value misstatements or MWs, and the number of identified misstatements and MWs related to pension is very low.

TABLE 8
Accounting Complexity and Disclosure Quality
(1) (2) (4) (3) (6)
Misstatement MW AQ Audit-Delay Audit-Fees
ARC 1.187*** 1.036*** 0.001 3.815*** 0.303***
(4.20) (2.87) (0.33) (4.57) (8.17)
DQ 0.606 3.035** 0.008 2.094 0.339**
(0.50) (1.99) (1.14) (0.61) (2.23)
Bus-Segment 0.025 0.013 0.001*** 0.138 0.050***
(0.49) (0.16) (3.15) (0.89) (7.29)
Geo-Segment 0.100*** 0.013 0.000 0.057 0.025***
(2.98) (0.32) (0.22) (0.62) (6.21)
Foreign 0.073 0.106 0.001 0.068 0.101***
(0.56) (0.61) (0.87) (0.18) (5.99)
Fog 0.059 0.016 0.001* 0.308* 0.011
(0.96) (0.20) (1.65) (1.77) (1.41)
10-K-Length 0.036 0.494** 0.003** 2.533*** 0.186***
(0.20) (2.09) (2.55) (4.85) (8.04)
Assets 0.061 0.433*** 0.002*** 0.869*** 0.408***
(1.08) (5.14) (4.68) (5.37) (56.84)
Constant 8.821*** 9.908*** 0.010 41.435*** 6.224***
(3.91) (3.34) (0.69) (6.44) (21.81)
All other controls Yes Yes Yes Yes Yes
Observations 3,267 3,225 2,868 3,395 3,395
Adjusted R2 0.457 0.058 0.855
Pseudo R2 0.137 0.205
Results in Table 10 show (with the exception of inventory misstatements) a positive association between the number of
inventory, derivatives, lease, and tax tags and the likelihood of a misstatement and MW disclosure that relates to these accounts.
In contrast, tags that capture complexity in other accounting areas (i.e., the non-inventory, non-derivatives, non-lease, and non-
tax tags) are not significantly associated with FRQ in the accounts we examine. Importantly, in most cases, operating and
linguistic complexity measures are insignificant. This analysis illustrates more directly the link between the building blocks of
ARC and FRQ, further validating ARC. Importantly, it is not possible to investigate similar questions with operating and
linguistic complexity because they lack an accounting context.
Are Complex Accounting Areas Driving the Results?

Certain accounting areas, such as fair value, taxes, pensions, and derivatives, are considered to be more complex than
others. It is possible that only these specific complex accounts drive the results, and once removed, ARC will no longer be
associated with FRQ. To examine, we remove XBRL tags related to these complex accounts from ARC. We reestimated our
models using the new ARC and observe similar results. This provides some reassurance that our results are not fully explained
by a specific group of complex account categories.
Accounting Expertise and Financial Reporting Quality

ARC has the ability to be useful for a variety of unanswered research questions, and also as an interesting moderating
variable in known associations. For instance, previous literature has consistently documented that accounting financial experts
(AFEs) serving on the audit committee are associated with better financial reporting quality (Krishnan 2005; Hoitash et al.
2009). In the following analysis, we examine whether AFEs attenuate the likelihood of misstatements and MWs in complex

TABLE 9
Changes in FRQ and Changes in Complexity
(1) (2) (4) (5)
New-Misstatement New-MW DAudit-Delay DAudit-Fees
Complexity Measures
DARC 1.746*** 2.326*** 8.329*** 0.367***
(2.66) (3.52) (9.62) (13.45)
DBus-Segment 0.076 0.028 0.129 0.008
(0.62) (0.22) (0.80) (1.50)
DGeo-Segment 0.171 0.120 0.113 0.005
(1.61) (1.03) (0.76) (0.99)
Foreign 0.041 0.294* 0.008 0.008
(0.27) (1.87) (0.04) (1.35)
DFog 0.048 0.167 0.311** 0.001
(0.48) (1.51) (2.45) (0.35)
D10-K-Length 0.230 0.267 0.373 0.011
(1.02) (1.08) (1.33) (1.28)
Controls
DSize 0.543* 0.279 1.074*** 0.239***
(1.91) (1.09) (2.76) (19.41)
Loss 0.026 0.876*** 0.060 0.015**
(0.16) (5.63) (0.31) (2.52)
Going-Concern 0.502 1.114*** 3.181*** 0.043**
(1.33) (3.50) (5.27) (2.25)
DDistress 0.033 0.111 0.199** 0.016***
(0.47) (1.57) (2.22) (5.84)
Ext-Growth 0.425** 0.198 0.265 0.058***
(2.24) (0.97) (1.04) (7.17)
DStd-CFO 1.484 1.496 4.922 0.177
(0.53) (0.59) (1.40) (1.60)
DStd-Sales 0.527 1.460 0.006 0.026
(0.50) (1.31) (0.00) (0.60)
DLeverage 1.130 0.977 0.254 0.000
(1.45) (1.27) (0.24) (0.01)
DInv-Rec 0.410 0.305 0.130 0.051
(0.34) (0.27) (0.09) (1.07)
Restructure 0.419*** 0.227 0.078 0.009
(2.78) (1.37) (0.41) (1.48)
Acquisitions 0.083 0.134 0.152 0.008
(0.49) (0.72) (0.74) (1.27)
DSpecial-Items 3.761** 2.863** 9.670*** 0.391***
(2.55) (2.27) (5.10) (6.54)
Firm-Age 0.000 0.008 0.002 0.000
(0.06) (1.48) (0.43) (0.39)
Lit-Ind 0.224 0.124 0.212 0.016
(0.79) (0.46) (0.64) (1.56)
Big4 0.598*** 0.002 0.210 0.053***
(3.16) (0.01) (1.05) (8.36)
MW 1.710***
(9.58)
Misstatement 2.339***
(15.47)
Constant 3.958*** 5.141*** 1.070** 0.038**
(8.76) (11.01) (2.12) (2.41)

TABLE 9 (continued)
(1) (2) (4) (5)
New-Misstatement New-MW DAudit-Delay DAudit-Fees
Industry and Year FE Yes Yes Yes Yes
Observations 6,892 6,912 7,659 7,659
Adjusted/Pseudo R2 0.109 0.187 0.027 0.147
TABLE 10
Account-Specific Complexity, Material Weakness, and Misstatements
(1) (2) (3) (4) (5) (6) (7) (8)
MW MW- MW MW Misstatement Misstatement Misstatement Misstatement
Inventory Derivatives Lease Tax Inventory Derivatives Lease Tax
Inventory Tags 0.053** 0.034
(2.07) (1.15)
Non-Inventory 0.000 0.000
Tags (0.15) (0.29)
Derivatives Tags 0.035*** 0.039***
(2.69) (3.56)
Non-Derivatives 0.002 0.001
Tags
(0.71) (0.49)
Lease Tags 0.034*** 0.047***
(2.99) (3.25)
Non-Lease Tags 0.003 0.003
(1.58) (1.17)
Tax Tags 0.014*** 0.012***
(3.46) (3.53)
Non-Tax Tags 0.002 0.001
(1.42) (0.47)
Bus-Segment 0.098 0.153 0.020 0.225*** 0.276 0.013
(1.33) (1.21) (0.32) (3.36) (1.61) (0.25)
Geo-Segment 0.014 0.101 0.023 0.013 0.396*** 0.025
(0.38) (1.28) (0.51) (0.29) (4.14) (0.71)
Foreign 0.112 0.313 0.629*** 0.243 0.778* 0.103
(0.64) (0.91) (3.46) (1.22) (1.68) (0.69)
Fog 0.007 0.089 0.212*** 0.031 0.143 0.061
(0.08) (0.58) (2.60) (0.32) (0.68) (0.91)
10-K-Length 0.392 0.551 0.086 0.120 0.780 0.114
(1.59) (1.29) (0.37) (0.43) (1.11) (0.55)
Size 0.238*** 0.135 0.369*** 0.085 0.077 0.063
(2.87) (0.99) (4.84) (0.99) (0.43) (1.00)
All other controls Yes Yes Yes Yes Yes Yes
Industry and Yes Yes Yes Yes Yes Yes
Year FE
Observations 6,081 5,342 8,034 10,433 6,468 6,086 5,191 11,148
Pseudo R2 0.174 0.219 0.203 0.160 0.117 0.243 0.270 0.119

TABLE 11
Accounting Complexity, Audit Committee Accounting Expertise, and Financial Reporting Quality
(1) (2)
Misstatement MW
ARC 1.444*** 1.654***
(5.43) (4.63)
PAFE 1.241 8.638
(0.31) (1.50)
ARC 3 PAFE 1.006** 1.251**
(2.01) (1.89)
Bus-Segment 0.042 0.021
(0.89) (0.27)
Bus-Segment 3 PAFE 0.156 0.010
(1.63) (0.06)
Geo-Segment 0.074** 0.142***
(2.09) (2.68)
Geo-Segment 3 PAFE 0.204*** 0.328***
(2.78) (3.31)
Foreign 0.308* 0.536**
(1.93) (2.40)
Foreign 3 PAFE 0.447 0.830*
(1.30) (1.72)
Fog 0.088 0.098
(1.30) (1.00)
Fog 3 PAFE 0.121 0.180
(0.83) (0.82)
10-K-Length 0.042 0.284
(0.22) (1.06)
10-K-Length 3 PAFE 0.442 0.151
(1.10) (0.26)
Size 0.133*** 0.404***
(3.79) (7.45)
All Other Controls Yes Yes
Industry and Year FE Yes Yes
Observations 7,661 7,530
Pseudo R2 0.122 0.203
firms.38 We conjecture that the accounting knowledge of AFEs is more important to firms with complex accounting. We
interact PAFE (the percentage of AFEs) with all complexity measures. Results reported in Table 11 suggest that while more
complex companies have a greater likelihood of misstatement and MW, a greater proportion of AFEs can attenuate the impact
of ARC (p , 0.05, p , 0.05).
Alternative ARC Measurements and Confounding Factors

Taxonomy Tags, Extended Tags, and the Proportion of Extended Tags
ARC is composed of Taxonomy-Tags, those that appear in the taxonomy, and Extended-Tags, which are created when
firms believe that there is no suitable tag in the taxonomy to represent a firm-specific accounting concept. Thus, Extended-Tags
may capture the level of accounting uniqueness of firms. To examine, we substitute ARC for Taxonomy-Tags and Extended-
38
We use BoardEx and classify audit committee members as AFEs if they have at least one of the following qualifications: certified public accountant,
chief financial officer, auditor, chief accounting officer, controller, treasurer, or vice president-finance. Due to BoardEx data availability, this analysis is
limited to the years 2011–2013.

Tags. Results in Table 2, Panel B of the Online Appendix 4 are similar to the main results with several exceptions. Specifically,
we observe that Taxonomy-Tags is inversely associated with AQ and Discretionary-Accruals, while Extended-Tags is not
significantly associated with Misstatement, but is positively associated with Discretionary-Accruals. We also use the ratio of
Extended-Tags/All-Tags, termed Percent-Extended. This ratio is, on average, 0.187, which means that for each of the Extended-
Tags, a company uses four Taxonomy-Tags. Results in Table 2, Panel C of the Online Appendix 4 are consistent with our main
results with two exceptions. First, this measure is negative in the misstatement analysis. Second, it is positive and significant in
the Discretionary-Accruals analysis. Because the use of extensions is not always warranted (Debreceny et al. 2011), the latter
results may suggest that the ratio may capture a form of managerial discretion.39
Linking ARC to FASB Standards

One weakness of the approach we use to calculate ARC is that it weighs all tags equally. To partially overcome this
weakness, we create a new measure that is based on the number of FASB accounting standards, SEC regulations, and Staff
Accounting Bulletins that appear in the FASB codification and are associated with each XBRL tag. Throughout the paper, we
conjecture that an XBRL tag is more complex if it references more standards. To test this claim, we collect the number of
references for each tag in our sample from the reference link provided in the XBRL taxonomy. We then sum the number of
references of each XBRL tag and aggregate it for each firm-year. Essentially, this is an aggregate measure of all accounting
regulations that preparers need to be aware of before preparing and filing their reports. Results using this alternative measure
are similar to our main results.40 This is expected because the two measures are highly correlated (93.07), suggesting that ARC
most likely also serves as a proxy for the number of accounting standards that companies reference in their filings. This
evidence provides a strong link between the volume of accounting tags and the preparation complexity of the reports, which
supports our motivation for the measure.
Confounding Events
One concern is that the disclosure of a restatement or an MW mechanically inflates the complexity measures. In other
words, if companies use more tags to describe their restatements or MWs, then the complexity measures will mechanically
increase, leading to the results we observe. To address this, we comb through all tags of companies that disclosed a restatement
or MW in 201241 and did not observe any tags that represent MWs42 and less than 0.3 percent of tags to describe restatements.
Removing these restatement-related tags had no significant effect on ARC and did not change our results.
V. SUMMARY AND CONCLUSIONS

The measurement of accounting complexity is important to accounting research. We propose a new accounting-based
measure of accounting reporting complexity (ARC). To construct ARC, we rely on the amount of accounting concepts disclosed
in XBRL 10-K filings. The preparation and disclosure of more accounting concepts is complicated because it requires greater
knowledge of GAAP. We operationalize ARC by counting the number of monetary XBRL tags in 10-K financial statements
and notes. The primary advantages of ARC, in comparison to other complexity measures, are its across- and within-firm
variation, its breadth and comprehensiveness, and its direct link to underlying accounting disclosures. We validate these
advantages using a battery of tests.
First, we examine how different complexity measures vary in response to economic events that should give rise to
accounting complexity. We find that, compared to commonly used measures of operating and linguistic complexity, ARC more
completely reflects the increase in accounting complexity. This analysis suggests that ARC exhibits greater within-firm
variation that can capture changes in accounting complexity. Next, we examine the association between several complexity
measures and five different proxies for FRQ. We find that ARC is associated with a greater likelihood of misstatements and
material weakness disclosures, longer audit delay, and higher audit fees. These results imply that complexity can increase the
likelihood of mistakes, incorrect application of GAAP, and can ultimately lead to less credible financial reports. Another
39
We also test the robustness of our results to different methods of constructing ARC. We constructed ARC without the elimination of duplicate
tags, using only the distinct tags, and using both monetary and text tags. Furthermore, we estimated a size-adjusted model in which ARC and all
other continuous variables are deflated by total assets. Untabulated results using these alternative measures and models are similar to the main
results.
40
One major shortcoming of this measure is that it can only be constructed for taxonomy tags and it disregards extended tags, which represent a
significant portion of tags in ARC.
41
Since this task requires extensive manual effort (i.e., combing through thousands of tags), we limit this search and corresponding analysis to fiscal year
2012.
42
The discussion of controls and procedures appears in Item 9A of the 10-K filings and, therefore, MW disclosures do not influence ARC.

possibility is that managers are more likely to intentionally manipulate the financial reports if they perceive that increased
complexity can shield them from detection (Bergstresser et al. 2006; Picconi 2006; Peterson 2012; Guragai et al. 2017). Future
research can further investigate whether the association between ARC and FRQ is due to intentional or unintentional
misapplications of GAAP.
We find that ARC is statistically significant in more models, has greater explanatory power in several models, and has the
greatest economic significance in all models relative to measures of operating and linguistic complexity. We further examine
how changes in the complexity measures are associated with changes in FRQ. This is important because previous research
often fails to find an association. We find that while changes in ARC are significantly associated with changes in FRQ, other
complexity measures do not experience this association. This further highlights the greater within-firm variation of ARC and its
ability to capture changes in accounting complexity. We take advantage of the accounting context that is embedded in ARC and
show that complexity measures that pertain to specific accounts are associated with the financial reporting quality of these
accounts. This analysis is important as it shows a direct link between underlying accounting properties of ARC and FRQ that
cannot be accomplished using other measures. Finally, we performed a battery of additional analyses that demonstrate the
usefulness and strength of ARC. Overall, ARC is highly robust and, in most cases, outperforms other complexity measures.
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APPENDIX B

APPENDIX A
Variable Definitions
Variable Variable Definition
Complexity Test Variable
ARC The natural log of the total number of distinct monetary XBRL tags in Item 8 of the 10-K filings
[Calcbench].
Bus-Segment The sum of reported business segments [Compustat Segment file].
Geo-Segment The sum of reported geographic segments [Compustat Segment file].
Foreign Equals 1 if the company has nonzero foreign currency translation, and 0 otherwise [Compustat data FCA].
Fog Defined as (average words per sentence þ percent of complex words) 3 0.4 in the 10-K filings (Gunning
1952).
10-K Length The natural log of the number of words in the 10-K filings.
Dependent Variable
Misstatement Equals 1 for companies that subsequently restated their financial reports, and 0 otherwise [Audit Analytics].
MW Equals 1 for companies disclosing a material weakness in their SOX Section 302/404, and 0 otherwise
[Audit Analytics].
AQ The standard deviation of the residuals from Dechow and Dichev (2002), as modified by McNichols (2002)
and Francis et al. (2005), calculated for each of Fama and French’s (1997) 48 industry groups with at
least 20 firms in year.
Audit-Delay The number of days between the fiscal year-end date and the audit report date minus the SEC’s filing
deadline requirement (60, 75, and 90 days for large accelerated, accelerated, and non-accelerated,
respectively) [Audit Analytics].
Audit-Fees The natural log of audit fees [Audit Analytics].
Control Variables
Size Natural log of total assets [Compustat data AT].
New-Acquisition Equals 1 for firms that had an acquisition where they sought at least 50 percent of the target in period t,
but not in t1, and 0 otherwise [Securities Data Corporation].
New-Restructure Equals 1 if any of the following data items are nonzero in period t, but not in t1: RCP, RCA, RCEPS, or
RCD, and 0 otherwise (Ashbaugh-Skaife et al. 2007) [Compustat].
New-Discontinued- Equals 1 for firms with reported discontinued operations (DO) in period t, but not in period t1, and 0
Operations otherwise [Compustat].
New-Capital-Lease Equals 1 for firms with a capital lease commitment (DCLO) in period t, but not in period t1, and 0
otherwise [Compustat].
Physical-Assets- Percent change in net property, plant, and equipment (PPENT LAGPPENT)/LAGPPENT [Compustat].
Upgrade
New-Write-Down Equals 1 for firms with a write-down (WDP) in period t, but not in period t1, and 0 otherwise
[Compustat].
New-Dividend-Issuance Equals 1 for firms that issue dividends (DVC) in period t, but not in period t1, and 0 otherwise
[Compustat].
New-Share-Issuance Equals 1 for firms with sale of common and preferred stock (SSTK) in period t, but not in period t1, and
0 otherwise [Compustat].
New-Debt Equals 1 for firms that issue long-term debt (DLTIS) in period t, but not in period t1, and 0 otherwise
[Compustat].
Loss Equals 1 if the company reported a net loss in the current or prior year, and 0 otherwise [Compustat data
NI].
Going-Concern Equals 1 if the company received a going-concern modified audit opinion, and 0 otherwise [Audit
Analytics].
Distress Calculated as the decile rank of the Altman’s Z-score (Ashbaugh-Skaife et al. 2007) for nonfinancial firms
and Roy (1952) for financial firms [Compustat].
Ext-Growth An indicator variable that equals 1 if the year-over-year industry adjusted sales growth falls in the top
quintile, and 0 otherwise (Doyle et al. 2007b) [Compustat].
Std-Opcash The standard deviation of cash flows from operations calculated over five years with a minimum of three
years [Compustat data OANCF].
Std-Sales The standard deviation of sales calculated over five years with a minimum of three years [Compustat data
SALE].
Loss-Prop The proportion of loss years over the past five years [Compustat, OIBDP].

APPENDIX A (continued)
Variable Variable Definition
Std-ROA The standard deviation of ROA over the past five years [Compustat, OIBDP/AT].
Op-Cycle The natural of the average of [360/(Sales/Average Accounts Receivable) þ 360/(Cost of Goods Sold/
Average Inventory)], over the past five years [Compustat].
Leverage The ratio of total liabilities to total assets ((DLC þ DLTT)/AT) [Compustat].
Inv-Rec The ratio of inventory þ accounts receivable to total assets [Compustat].
Restructure Equals 1 if any of the following data items are nonzero: RCP, RCA, RCEPS, or RCD, and 0 otherwise
(Ashbaugh-Skaife et al. 2007) [Compustat].
Acquisition Equals 1 for firms that had an acquisition where they sought at least 50 percent of the target, and 0
otherwise [Securities Data Corporation].
Special-Items Calculated as special items divided by total assets (SPI/AT) [Compustat].
Firm-Age The number of years the firm has Compustat data [Compustat].
Lit-Ind Equals 1 if a firm is in a litigious industry (SIC codes 2833 to 2836, 3570 to 3577, 3600 to 3674, 5200 to
5961, and 7370), and 0 otherwise [Compustat].
Big4 Equals 1 if for a Big 4 auditor, and 0 otherwise [Audit Analytics].
Taxonomy-Tags The natural log of the total number of distinct numeric U.S. GAAP XBRL tags reported in Item 8 of the
10-K filings [Calcbench].
Extended-Tags The natural log of the total number of distinct extended tags that are reported in Item 8 of the 10-K filings
[Calcbench].
Online Appendices 1-4: http://dx.doi.org/10.2308/accr-51762.s01

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THE ACCOUNTING REVIEW American Accounting Association

Vol. 93, No. 1 DOI: 10.2308/accr-51762

Measuring Accounting Reporting Complexity with XBRL

JEL Classiﬁcations: M41; M43.

The Accounting Review

The Accounting Review

II. BACKGROUND AND HYPOTHESES DEVELOPMENT

XBRL Regulation and Related Research

XBRL U.S. GAAP Taxonomy

The Accounting Review

Proposed Measure of Accounting Complexity

Categories of Complexity Measures

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III. DATA AND METHODOLOGY

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Other Complexity Test Variables

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Panel A: Descriptive Statistics

(continued on next page)

The Accounting Review

The Association between Significant Economic Events and Accounting Complexity

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Results of H1: Accounting Complexity and Financial Reporting Quality

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Results of H2: Accounting Complexity, Audit Delay, and Audit Fees

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Additional Analyses and Validation Tests

Accounting Complexity Not Due to Operating or Linguistic Complexity

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Accounting Complexity and Disclosure Quality

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Are Complex Accounting Areas Driving the Results?

Accounting Expertise and Financial Reporting Quality

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Alternative ARC Measurements and Confounding Factors

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Linking ARC to FASB Standards

V. SUMMARY AND CONCLUSIONS

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The Accounting Review

Online Appendices 1-4: http://dx.doi.org/10.2308/accr-51762.s01

The Accounting Review

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