The Securities and Exchange Commission (SEC) recommends that firms provide MD&A disclosures quantifying the earnings effect of reasonably likely changes in critical accounting estimates (quantitative CAE). This paper examines the determinants and consequences of quantitative CAE. We find that quantitative CAE are negatively associated with management's incentives to misreport (proxied by portfolio vega) and positively associated with audit committee accounting expertise and with audit offices with multiple quantitative CAE clients. These findings hold for the presence, initiation, number, and magnitude of quantitative CAE, and for both pension and non-pension quantitative CAE. We also find that incidences of AAERs, misstatements, and small positive earnings surprises decrease after initiation of quantitative CAE. Collectively, our findings provide insight into the use of quantitative disclosure to inform users about accounting estimation uncertainty in financial reports. JEL Classifications: M41; M42; M48. Data Availability: Data are available from the public sources cited in the text.

This study examines the incremental predictive power of aggregate measures of financial misreporting for recession and real gross domestic product (GDP) growth. We draw on prior research suggesting that misreporting has real economic effects because it represents misinformation on which firms base their investment, hiring, and production decisions. We find that aggregate M-Score incrementally predicts recessions at forecast horizons of five to eight quarters ahead. We also find that aggregate M-Score is significantly associated with lower future growth in real GDP, real investment, consumption, and industrial production. Additionally, our result that aggregate M-Score predicts lower real investment one to four quarters ahead partially accounts for why misreporting predicts recessions five to eight quarters ahead. Our findings are weaker when we use aggregate F-Score as a proxy for misreporting. Overall, this study provides novel evidence that aggregate misreporting measures can aid forecasters and regulators in predicting recessions and real GDP growth.