Abstract
Using eXtensible Business Reporting Language (XBRL) filings, we propose two measures of accounting complexity. The first is based on the number of US GAAP XBRL Taxonomy tags reported in the annual financial filings. The second is based on the number of customized (extended) XBRL tags created by companies when the taxonomy does not include suitable tags to represent company-specific accounting concepts. Based on existing theory, we conjecture that high volume and more unique company-specific accounting information complicate the preparation of the financial reports. We validate these measures by examining their association with several proxies for financial reporting quality. We find that the proposed accounting complexity measures are strongly associated with increased likelihood of issuing financial statement restatements, disclosing material weaknesses in internal controls and with higher level of abnormal accruals. Greater complexity is also positively associated with higher audit fees.
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