An International Meeting of the American Accounting Association American Accounting Association 2006 Annual Meeting August 6–9, 2006 Washington, D.C.

Robert D Slater
Texas A&M University - Corpus Christi

Abstract: This study builds upon prior research of credibility and anecdotal evidence from public relations to examine the impact of altering management’s tone in communicating with investors via the statement on internal controls as required by the PCAOB’s Auditing Standards No. 2. Consistent with predicted hypotheses, the study finds that management can increase their credibility with investors by communicating their empathy, responsiveness, and understanding to investors. Management’s increased credibility was measured using both a validated credibility scale and by examining participant’s decision making. Participants were given one of two forms of management’s statement of internal controls and were then asked to make a prediction of EPS. After receiving management’s predicted EPS participants revised their initial forecast. Participants in the high credibility condition revised their forecasts closer to managements EPS prediction than participants in the control credibility condition.

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