Political risk assessment and disclosure in annual financial reports: The case of the Persian gulf war

Abstract

This paper focuses on current practices of political risk evaluation and disclosure by management and auditors. Disclosure about effects of the Gulf War in corporate annual reports serves here as a case in point. Current accounting and auditing guidelines on the treatment of uncertainties and contingencies provide a background for in-depth analysis of annual reports of U.S. companies operating in Kuwait before and during the war. Our results indicate minimal war-related disclosure in consolidated financial statements accompanied by total absence of segmental disclosure. It is most likely that auditors did not challenge management representation because of the materiality doctrine.